This ‘best’ software company is showing off its data advantage today
This season’s holiday shopping data comes from an unlikely source…
Cyber Monday has been making the wrong kind of story lately. Sales fell for the first time.
Thanks to high-quality data, however, we know it’s not worth panicking about. Overall, holiday sales continue the trend of breaking previous records. The fact that only Black Friday and Cyber Monday are down – while overall sales for the season are expected to increase – speaks to the supply chain constraints companies face.
These issues will eventually be resolved. The numbers show us that the American consumer is stronger than ever.
But crucially, this powerful data doesn’t come from big retailers, giants like Amazon or Alphabet’s Google, or consulting firm McKinsey…
It comes from Adobe (ADBE).
That’s right. The company we all know for its Reader and Photoshop software is now the go-to source for holiday retail shopping data.
In addition to its popular photo and PDF editing software, Adobe sells Creative Cloud, which offers a premium suite of products for professional creators. It’s what most people have come to know and love about the titan of Silicon Valley.
But Adobe has quietly grown out of its niche…
Adobe also offers services for businesses that want to better understand their customers. Among these “digital experience” services is an e-commerce analytics data model…and many believe it’s even better than Google’s popular “enhanced e-commerce” service.
Adobe released data for this year’s holiday season as part of an awareness and marketing campaign, showing the capabilities of its analytics team.
The digital experience segment was a natural next step for the company. Adobe has transformed its own business over the past decade. Specifically, it embraced a software-as-a-service (SaaS) business model…that made it easier than ever to onboard new customers and sell new types of products.
Like Canadian e-commerce giant Shopify (SHOP), Adobe is among the early adopters of the SaaS revolution…
With Salesforce (CRM) and Intuit (INTU), Adobe has proven to the world that the SaaS model is better and more profitable than selling expensive, one-time software licenses. Instead, SaaS companies can generate recurring revenue by selling subscriptions.
Salesforce and Intuit have proven that the SaaS model can work for businesses. Adobe has chosen to be the pioneer for consumers, in particular with its Creative Cloud.
But the business-to-business opportunity was still waiting in the wings. It was an opportunity Adobe simply couldn’t ignore. And all it needed to do was adopt its existing SaaS infrastructure to focus more on data and analytics for enterprise customers.
This was long before SaaS took over the technology markets. It was seen as a competitive advantage, not a necessity. Therefore, Adobe gained some first-mover advantages.
The company has tripled its digital experience business over the past 10 years. Its historical activity has also tripled since 2015.
The software world has since followed in Adobe’s footsteps… Non-SaaS options are widely considered obsolete. With the popularization of the cloud and the low barrier to entry, software companies have no other excuse than to offer a SaaS option to their customers.
Adobe’s business transformation has taken its stock from around $27 in 2011 to around $575 today, a gain of more than 2,000%…enough to turn every $5,000 into more than $100,000.
But you wouldn’t know that by looking at the metrics as reported.
In 2011, Adobe had 9% return on assets (“ROA”). In 2020, it was only 12%. The numbers as reported suggest that the move to SaaS has barely had an impact on Adobe’s business.
Take a look at ROA as reported since Adobe embarked on its SaaS journey…
This is exactly why our team at Altimetry uses uniform accounting… to smooth out the distortions of traditional accounting methods.
With Uniform Accounting, we can see why SaaS has led to massive gains for investors…
Adobe has made dozens of acquisitions over the past decade. This caused its balance sheet to swell as reported with the goodwill, keeping the ROA low.
In fact, these acquisitions were transformational, helping Adobe become a dominant leader in the cutting-edge world of technology. Take a look at the real numbers from Adobe…
SaaS has opened up a world of possibilities for Adobe. Customer acquisition has become easier than ever…subscription revenue is stable and predictable…and as Adobe’s customer base grew and profitability improved, long-time investors observed that the action turned into 20 sacks.
The past few years have shown that good SaaS companies can benefit investors enormously. Adobe is just a moonshot in this larger trend.
Editor’s note: Adobe is a $270+ billion company… So the reality is that right now, public investors have probably missed most of its biggest upside move. That’s why at Altimetry, Joel also seeks out the undiscovered gems – “microcap” companies that go public with less than $1 billion in value and have the potential to generate huge returns. In a brand new presentation, Joël and his team share all the details… Read more here.
REACH NEW HEIGHTS AND HELP LIMIT THE SPREAD OF CORONAVIRUS
Today’s business is helping in the fight against COVID-19…
As the pandemic persists, the world has acquired many other tools to help curb the spread of the coronavirus. One of the most important is the ability to test positive cases. Today’s company provides these tests…
Quest Diagnostics (DGX) is a $21 billion medical diagnostics company. This “global dominator” of lab results serves one in three American adults and half of the doctors and hospitals in the United States… And right now, it helps diagnose COVID patients. Last quarter, revenue of $2.77 billion was roughly flat year over year, while diluted earnings per share fell 2.8%. However, Quest also raised its outlook for the full year. The company now expects both higher-than-expected COVID testing and continued strength in its core business performance.
DGX shares are skyrocketing…up 44% in the past year, including dividends. They have just reached a new historic record. As Quest helps fight the pandemic – and its normal testing activities reflect this recovery – this trend looks set to continue…