Adobe’s (NASDAQ:ADBE) Flash software is used to develop animations, games, web pages and online advertisements. Flash is part of a suite of creativity software products offered by Adobe, called Creative Suite. The complete suite consists of other popular software such as Photoshop, Dreamweaver and InDesign. Adobe added Flash to its Creative Suite of products after it acquired Macromedia in 2005.
Demand for Adobe’s latest version of Creative Suite (version 5) remains strong despite speculation that Adobe’s Flash software will be replaced by HTML5. We believe that HTML5 does not pose a significant threat to Adobe’s Creative Suite sales in the near term.
Most Popular Articles
Adobe’s Recently Announced Earnings Results
Adobe recently announced its earnings in which it mentioned that its newly released Creative Suite 5 (CS 5) has seen higher adoption compared to Creative Suite 4 (CS 4). It also mentioned that the revenues for CS 5 exceeded that of CS 4 by 15% during the first five weeks of product launch. In another article, we discussed why Creative Suite’s success is important for Adobe’s stock.
Adobe also mentioned that Creative Suite 5 products containing Flash software achieved revenue growth of 22% over Creative Suite 4 Flash products for the similar period after the launch.
Adobe’s Flash vs. HTML5
Despite the threat from HTML5, Adobe’s Flash software has been gaining popularity among developers as the preferred software to be used in videos and online games. We believe that the momentum behind the Flash software will continue and it is unlikely that HTML5 will be able to replace Flash in the near future due to the high switching costs involved for developers. Adobe has also released an HTML5 pack for Dreamweaver CS5 users, showing support for the emerging standard.
We also believe that the faster adoption of Flash software among developers and increasing availability of videos for which Flash is an integral part, are some of the other factors why HTML5 will not replace Flash quickly.
Below we discuss these factors in detail.
1. Flash Adoption Among Developers Increasing at a Fast Rate
According to Adobe, Flash is now being used by 3.5 million creative designers and developers, which was a 59% increase year over year. With more developers accustomed to using Flash, the barriers to shifting to HTML5 .
2. Flash is an Integral Part of Videos and Games
Flash is present in about 75% of online videos present on the web. With more and more programming content like sports events and YouTube videos being streamed through the internet, the demand for Flash will increase. The already large presence of Flash on the internet and increasing demand for more programming content online, will again make it difficult for Flash to be replaced by HTML 5.
Adobe’s Market Share Expected to Remain Cyclical
We estimate that Creative Suite software constitutes around 54% of the $38 Trefis price estimate for Adobe’s stock. Adobe’s share in the Creative Software market is cyclical, with gains following each new release of its Creative Suite software and gradual declines before the next release.
Flash is an important component of Adobe’s Creative Suite Software and we believe that sales of Creative Suite will remain strong despite the threat of HTML5.
You can modify our forecast above, however, if you believe that HTML5 will pose a threat to Flash and lead to a decline in Adobe’s market share. For example, there could be a downside of 5% to Adobe’s stock if Adobe’s share in Creative Software market declines to around 40% by the end of Trefis forecast period, instead of 44% that we forecast.