Adobe Systems Inc. (ADBE) – Strong Fundamentals & Fund’s Favorite

The latest results (September 30, 2017) based on 13F activity, Adobe Systems Inc. (NASDAQ:ADBE) holds the top rank as a widely held stock. Funds like FMR LLC, Blackrock Inc, Vanguard Group Inc hold the highest number of shares of ADBE, while Family Capital Trust Co, Suvretta Capital Management LLC have ADBE as 37.3% and 10.6% of their total portfolio value.

For the third quarter fiscal year 2017, Adobe recorded a 26% year-over-year growth in its quarterly revenue to $1.84 billion. On GAAP basis, operating income increased 48% while net income surged 55% during the same period.

Not being a mere document management and graphics software company, Adobe has now ventured into creating artificial intelligence technology. The company does not sell ads alone but promotes its campaign of “Experience Business”, develops a solution for the problem which did not even exist and which consumers did not even think would be possible — thereby shifting its revenue paradigm and gain further stability. Adobe Experience Cloud recorded a 26% percent growth in its year-over-year revenue.

Looking ahead, ADBE estimates total available market for creative cloud to be at $24.2 billion while for the document cloud the market estimate is at $5.3 billion. For 2018, ADBE digital media is estimated to grow 23% year-over-year and Experience Cloud total revenue to rise by 15% year-over-year. Full year GAAP EPS estimates stands at $4.40.

Transitioning from a desktop software company to cloud-based software providers, companies like Microsoft (MSFT) and Adobe are now reaping benefits after years of pushing efforts. Unlike prior times where consumers would usually buy a computer software from an online retailer, tech companies including Adobe have adopted software as a service model by allowing people to opt for its Creative Cloud service providing access to latest applications for a monthly subscription. By paying a small access fee, consumers can also unlock special features of the applications and fulfil their requirements.

With 2018 to experience partnerships in cloud computing, platform providers like Amazon Inc (NADAQ: AMZN), Microsoft and Google are seeking to sign more application software makers to preferred provider arrangements. MSFT already has cloud partnerships with Adobe and SAP. Indicating successful transition to cloud computing, ADBE recorded a $308 million increase in its digital media annualized recurring revenue for the third quarter compared to the second quarter. Adobe’s digital media business includes software subscriptions for the Creative Cloud, Photoshop and other tools.

In the past 3-months, ADBE stock price recorded a 15.8% gain hovering around its 52-week high levels and also racing ahead of average industry analyst estimates. During the third quarter, the company repurchased almost 2.1 million shares leading to $298 million of cash return to stockholders.