What's going on?
Adobe – the creative software giant worth over $130 billion (which owns photo editor, Photoshop, and PDF viewer, Acrobat) – reported better-than-expected results on Thursday, which helped its stock rise by 3% on Friday.
What does this mean?
Adobe grew its sales by 24% and profit by a third compared to the same time last year – exceeding expectations for the ninth quarter in a row #nofilter. The company’s expecting an Encore (drumroll please) next quarter: it photoshopped its annual sales and profit targets to 1% more than investors forecast.
Growth in Adobe’s largest segment – creative and digital media – led the charge last quarter. The transition to online advertising has cut out middlemen (like WPP) as brands interact directly with advertising platforms like Facebook, and influencers use Adobe’s products to create their own styled images and campaigns.
Why should I care?
For markets: Adobe’s software goes hard.
Adobe’s stock price has risen almost fivefold in the last five years. It’s migrated to a subscription-based approach to selling its products as opposed to traditional software licensing (now you can get Photoshop for $9.99 a month, when it used to be $699 to buy outright) – meaning the company’s revenue is more predictable, and its customers stickier. Adobe’s software is so well-used (“Photoshop” is both the name of its photo editing software and a verb, as “Google” is to online searching), some analysts believe Adobe could become a third “A” in the FAANG group of tech companies (Facebook, Amazon, Apple, Netflix, Google).
The bigger picture: Adobe’s buying its way into new markets.
In May, Adobe bought ecommerce platform Magento Commerce and reports suggest it’s keen on acquiring marketing software firm, Marketo (tweet this). This would pit it against Salesforce.com, which is big in marketing and ecommerce technology, as well as cloud computing (where Oracle and Microsoft are major players, too). Marketo was bought by a private equity firm two years ago for $2 billion, but is expected to fetch a much richer price if a sale’s agreed now.