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My 'Buy The Dip' has to be Adobe $ADBE
Adobe is a SAAS powerhouse. Here are a few of the standout topline metrics -
  • Gross Margin = 88.18%
  • 5 Year Rev CAGR = 17%
  • 93% recurring revenue
  • ROIC = 25.9%
  • CEO, Shantanu Narayen, has been in that role since 2007 and named a Top CEO by Glassdoor based on employee feedback
There’s a strong likelihood you’ve opened a PDF file today. The Instagram adverts you’ve scrolled through were edited with Photoshop. The logo on the device you’re reading this was designed using Illustrator. More than 300 billion PDFs were opened in Adobe products in the last year!
With 12 month revenue growth of 22%, gross margins of 85%+ and 93% (and growing) recurring income, Adobe has to be my 'Buy the Dip' pick.
The best part is that it's on sale. The share price is down 46% from last year’s all time high!
The Business
Adobe has grown revenue at a 17% CAGR for the past 5 years! With gross margins of almost 90%, net income has grown by over 23% in the same time frame. Over the past decade the business model has transformed from a stagnating, high-priced licence to a recurring-revenue machine. In 10 years, shares have risen 1,100% in comparison to the S&P’s 200% return. Adobe’s transition to a recurring revenue model may be one of the most impressive of this century!
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Creative Cloud

Creative Cloud launched in 2011 with the aim of unifying the company's software applications. Today, Creative Cloud is a collection of 20+ apps for photography, video, design, web, UX, and social media. The software boasts over 26 million subscribers. Sustained growth for flagship applications, such as Photoshop, Illustrator and Premiere, ensured Adobe’s recurring revenue grew 17.3%, on average, between 2016 and 2021.
Photoshop is the industry standard and used by over 90% of the world’s creative professionals. It is an essential tool for photographers, designers and the digital creative industry. Not being able to use photoshop in the design industry is like being unable to write in a classroom.
Document Cloud

Document Cloud enables the editing, scanning and signing of documents across web, desktop and mobile. Document Cloud includes Adobe Acrobat plus Sign & Scan. It remains the fastest growing segment of the company.
Adobe Sign has facilitated over 8 billion digital document signings in the past year. The software allows users to receive fast and secure e-signatures and could be the future of agreements.
Adobe Scan boasts more than 138 million downloads and has been responsible for the creation of over 2 billion documents. The company claims that Document Cloud is responsible for a 90% cost reduction and 95% reduction in environmental impact in comparison to the paper based process.
A SAAS Powerhouse
Adobe's SaaS model provides greater certainty of revenue streams, whilst lower prices ensure both professional and home users. Adobe now generates a huge 93% of revenue from subscription, marking a remarkable evolution.
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Bull Case
High User Tie In & Switching costs - Many Adobe software customers have used the applications for years, or decades. This results in an unwillingness to switch away. Adobe is notorious for offering free or discounted software to university students, encouraging them to become part of the ecosystem at an early stage in their career. As the products become more complex, users become even more unlikely to switch. This generates recurring revenue from sticky customers.
Gold Standard for Creatives - Photoshop (with over 20 million monthly active users) and Illustrator are the gold standards in the creative industry. The high time commitment required to learn the new software results in high switching costs. Beyond high switching costs, the proprietary file format of the widely used products (including psd, psb, ai, xd) results in a network effect and helps cement the company’s market position.
Horizontal Stack - When attacked by individual apps, such as GIMP for photo editing or Avid for video editing, Adobe offers a full suite of applications to fulfil the entire production process. The diversity of their suite means it is almost impossible to be challenged on all fronts whilst offering a high degree of diversified revenue.
Optionality on the next stage of AR & VR - Adobe’s tools are already used to create games, immersive commerce, and augmented reality environments. The company’s investment in AR & VR software will enable present-day brands to become metaverse-ready.
The company has been dominant in their field for over 20 years, it’s difficult to see a scenario in which they are displaced in the next 20.

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