Adobe is one of the best software companies in terms of the business model and financial performance. Its stock is up 5.7X in the last 5 years while the company keeps growing earnings and revenues consistently quarter after quarter. You may recognize Adobe for its apps like Photoshop, Illustrator, and Premiere. However, the company has also expanded into other areas like marketing and cloud. The growth in online content creation and sharing, a shift towards a digital economy, and the emergence of new technologies are acting as long-term tailwinds for Adobe.
Adobe is one of the top software stocks to buy
Adobe is a dominant player in the creative software space. It operates at a scale and has delivered growth, unlike any other competitor. Its gross margins are consistently above 85% while revenues have grown at 25% rates over the last 3 years. The average annual 5-year revenue growth is about 21%. The recent operating margins are also close to 30%. Adobe projects its market size to be about $128 billion. So, the growth has been impressive and the runway for future growth is also quite reasonable.
More than just creative software
Adobe’s digital marketing solutions are also quite impressive. It has created a business segment called Experience Cloud that has enterprise software for managing advertising campaigns and marketing programs. The company offers users the ability to measure ad campaigns, send personalized emails, track customer engagement, and purchase advertising inventory. Salesforce.com is perhaps Adobe’s biggest competitor in the digital market segment. Both Adobe and Salesforce are highly regarded by investors as software stocks to buy for future growth.
Digitization of documents
Investors looking for software stocks to invest in should also consider the theme of document digitization. Adobe has a business segment called Document Cloud which leverages this trend. You may have extensively used Adobe Acrobat for reading, storing, and sharing documents. DocuSign is Adobe’s most relevant competitor in this space.
