Today’s Stock of the Week is a legend in digital content creation. It recently made a major change in its business model, which should mean steady profits for years to come.
Adobe Systems Inc. (ADBE) is a powerhouse in web-design software. Its tools enable businesses and individuals to publish, promote and make money from digital content.
Its reach is extremely wide, including advertising agencies, architects, artists, filmmakers, government agencies, graphic designers, hospitals, insurance companies, investment firms, manufacturers, pharmaceutical companies, photographers, universities, visual-effects producers, and many more. No single customer accounts for more than 1% of revenue.
Adobe is the standard for web design, and its Creative Suite is the number-one product. Adobe has turned this into a cloud-based subscription product rather than a boxed one. This change to a model called SaaS—software as a service—provides a more reliable revenue stream and reduces piracy. It also lowers Adobe’s cost of delivering its products, boosting profit margins.
Earnings should grow even faster than the 20% annual growth of revenue, which was $5.9 billion in fiscal 2016 and should rise to $7.2 billion in fiscal 2017 and $8.5 billion in fiscal 2018. And the company generates very strong free cash flow: $2.5 billion is likely this year.
Fiscal year.: Nov. Earnings per share: 2018 est./$4.99…2017 est./$3.95…2016/$3.02.
This Week’s Expert
Jim Collins is chairman and CEO, Insight Capital Research and Management, Walnut Creek, California, which manages $365 million. ICRM.com