Asset Management, Companies and Industries, The Economy May 8, 2024


Adobe (tkr: ADBE) has become the standard in content creation software and PDF file editing, categories the company created and still dominates. Adobe’s cloud services, including Adobe Creative Cloud and Adobe Document Cloud, are experiencing strong growth, driven by the increasing demand for digital transformation and remote collaboration tools. Its switch to a subscription revenue model offered significantly improved revenue visibility, expanded margins, and eliminated piracy for the company.  It also removed the high up-front price for customers, making it accessible to a wider audience. Despite this, Adobe commands premium pricing power and many of their products are industry standards, such as Photoshop. The steep learning curve of this product means that people are reluctant to learn a competitor’s product even if it is a cheaper offering.

Adobe has also proven to have a successful acquisition strategy to drive innovation and diversify revenue streams. The acquisitions of Omniture in 2009 and Magento and Marketo in 2018 are the foundations of Adobe’s Digital Experience, providing analytics as well as marketing and advertising solutions. Adobe recently abandoned the acquisition of Figma, a collaborative web application for interface design, due to regulatory concerns, incurring a $1B termination fee. While the acquisition was viewed by analysts as strategically sound, it was scrutinized over the high price tag, and so analysts reacted positively to the news that the two companies scrapped the deal.

Within the past couple of  years, generative AI has been at the forefront of conversations regarding Adobe. Adobe recently conducted a survey of 2,541 creative professionals across the globe which revealed the high levels of optimism on enhancing outcomes by leveraging generative AI. This will enable creative professionals to tackle more projects, make superior content, and foster creativity in both their personal and professional lives. Amidst this generative AI euphoria, Adobe has rolled out several generative AI features and capabilities across its portfolio. Generative AI features in Adobe Acrobat include its AI Assistant to answer questions based on the content within the PDF. It can also create a Generative Summary that outlines the pdf and provides a summary, highlighting key points in the document.

In March 2023, Adobe released a beta version of Firefly, its collection of generative AI art models, with the full version released commercially in September 2023. Within its Creative Cloud business, Firefly offers several features to help boost creativity including Generative Fill and Generative Expand which can update images with just text prompts in Photoshop. Users of Illustrator can also use Text to Vector Graphic and Generative Recolor to create vector graphics and experiment with color palettes and themes. While generative AI is still in its infancy, Adobe continues to innovate, securing its leadership within the content creation space.



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