• Reinhardt Coetzee


Known for its premier suite of creative tools Adobe Inc is the world’s largest SaaS vendor in terms of market capitalization (US$191bn, US$40bn higher than Salesforce) and has established itself as the world’s largest vendor of creative, document management, and marketing software, serving downstream customers including large enterprises, creative professionals and marketing agencies.

◾Business transformation

Since the last few years, Adobe has transformed its business model and like most SaaS vendors built an architecture including both “Platform” and “Applications”. The underlying platform helps in sharing of content and data, while applications integrate its “Digital Media” and “Digital Marketing” products. This has significantly improved the company’s revenue visibility and also eliminated the risk of piracy.

◾Shift towards subscription model

Adobe has successfully transformed its business model to subscriptions from licenses, leading to a substantial increase in numbers of users. This model is driven by low-priced cloud products, compared with the earlier model of issuing high-priced perpetual licenses. This has resulted in a quick sales cycle with users completing the transactions online, thus encouraging market expansion beyond creative professionals. In FY19, the company reported revenues of US$11.2bn, of which SaaS subscription revenues accounted for 89.5% (50% in FY14).

◾Digital products integration to drive business

Adobe continues to focus its investments in two strategic growth areas, i.e. Digital Media (69% of FY19 revenues) and Digital Experience (28.7%). Digital Media segment, which includes Creative Cloud (58%) and Document Cloud (11%), continues to show strong growth, with growth in Creative Cloud materially higher. In the Digital Experience space, the company has built its product portfolio through a series of acquisitions and eventually adding organic features. Adobe now has leadership in various categories that fall under the digital experience umbrella, including digital marketing analytics, campaign management, and customer engagement, among others.

Adobe predicts that the total addressable market for its core products could reach US$128bn by 2022. The core drivers are mainly the continuous growth in design & creative personnel, digitization of core business flows, and automation brought by the cloud migration of enterprises.

The company expects its flagship product Creative Cloud (58% of FY19 revenues) to expand by 7%-8% per annum, driven by increasing reach of its mobile-based products, the transformation from paper to digital, and product line optimization.

The company is also looking at improving its Average Revenue Per Users (ARPU), through integrating and embedding its AI platform “Sensei” across all offerings. Adobe is also channeling its energy towards converting users with a one-app subscription to a full-suite contract (~30 unique products).

◾Content & Commerce remains a prodigy

Adobe continues to grow organically as well as through acquisition to drive the most comprehensive portfolio of tools used in print, digital, and video content creation. In 2018, Adobe acquired Marketo, a marketing cloud platform company for US$4.7bn, and Magento Commerce, an eCommerce platform company for US$1.7bn. Adobe expanded its market opportunity by having control of the entire customer journey from content creation, marketing, analytics to commerce. With access to a trillion transactions and tens of millions of products, the company is increasingly enabling brands to create and deliver real-time, personalized shopping experiences across multiple digital channels informed by data and insights. In combining its content creating tools (digital media) with this eCommerce framework, any sort of extended monetization can create large revenue potential.

◾Strong Q1 performance driven by digital media

The company reported total revenues of $3.1bn for 1Q20, up 19% YoY, primarily driven by higher than expected growth in the Digital Media segment and continued momentum in the Digital Experience segment. Digital media and experience are the company’s two major segments which contributed to ~98% of the total revenues.

◾Continued growth in digital experience

Adobe’s digital experience includes an array of cloud services for marketing, eCommerce, analytics, and advertising. Quarterly revenues from digital experiences grew 15% YoY, at par with the company’s expectations, to $858mn. This was driven by key contracts from vendors such as Intuit, PayPal, Bank of America, State of Oklahoma, Toyota Motors, and Accenture among others.

◾Outlook going forward remains positive

Despite the short-term uncertainty resulting from the pandemic, expect Adobe to continue its growth momentum over the long term.

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