Adobe Stock Shows the Market Blues Don’t Affect the Quality and Value

June 21, 2021

views 3261
Adobe Stock Shows the Market Blues Don’t Affect the Quality and Value

The market we are eyeing now is not retreating – rather it is increasingly chasing quality and value. Although being considered a cyclical stock, Adobe (ADBE) possesses both. The renowned hi-tech pillar has released its recent quarterly earnings results. The company's shares are up almost 3% in just two days vis-a-vis a falling market. Adobe is an international IT company with a well-known and recognizable brand, a long history and a diverse portfolio of private and corporate clients. As of the first quarter of fiscal 2021, the company generated revenue from three main segments: digital media (~ 73% of revenue), digital technology (~ 24%), and publishing and advertising (~ 3%).

The digital media segment includes their most famous product, Creative Cloud, as well as Document Cloud. Creative Cloud is a diverse set of tools for creating, publishing and promoting digital content. The most well-known applications include Photoshop and Illustrator. Adobe Document Cloud clearly wins the competition against standalone companies in the same industry – such as DocuSign (DOCU). Adobe's historic success in implementing a cloud-based subscription model will continue to drive significant revenue growth for the company.

On Friday Adobe reported earnings per share of $2.32, beating the consensus forecast by 22 cents per share. Revenue of $3.84 billion (+ 22.7% YoY) also exceeded expectations by a comfortable margin of $110 million. The main segments’ revenues generated $2.79 billion, which is 25% more than last year. Document Cloud revenue was $ 469 billion, up 30% YoY. Adobe bought back about 2.1 million of its shares during the quarter.

By scaling and dominating in its business niche, Adobe continues to expand and capitalize on a good acclaimed product line that is well positioned vis-à-vis the competitors. At P/E of around 45 the company may look somewhat excessively valued, but for a well established high-tech company it implies a healthy upside.

Investment analysts are extremely unanimous about the upside of ADBE shares, calling the range of $ 630- $650, which implies an instant growth to the tune of 13-15% from the current levels.