Upside And Downside Scenario For Adobe’s Online Marketing Cloud

+18.18%
Upside
514
Market
607
Trefis
ADBE: Adobe logo
ADBE
Adobe

Over 17% of Adobe’s (NASDAQ:ADBE) valuation can be attributed to its marketing cloud initiative. Adobe plans to maintain its dominance in the industry as it did in the previous quarter, according to Forrester’s Wave report on digital experience platform. [1] According to Adobe’s SEC filings, it generated over $1.12 billion revenues from its marketing cloud initiatives in 2014. This trend continued in 2015 as in the first nine months of the fiscal year (ends with November) the company has generated over a billion dollars in revenues, well  on its way to our full year estimate of $1.39 billion. The primary reason for this growth is the comprehensive marketing offering  includes a complete set of analytics, social, media optimization, consumer targeting, web experience management and cross-channel campaign management solutions. Considering the rapid adoption of Adobe’s marketing cloud, we believe that Adobe’s revenue could increase significantly. On the other hand, competition from player’s such as SAP, IBM, Oracle and Salesforce.com is intensifying and can eat into Adobe’s leadership. In this note, we explore the upside and downside scenario for Adobe.

Check out our complete analysis of Adobe

Upside To Marketing Cloud 

Relevant Articles
  1. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  2. Down 8% YTD, What To Expect From Adobe Stock In Q1?
  3. Up 77% Last Year, What To Expect From Adobe Stock?
  4. Adobe Stock Is Trading Below Its Fair Value
  5. Adobe Stock Outperformed The Street Expectations In Q2
  6. Adobe Stock Topped The Consensus In Q1, What’s Next?

Adobe’s cloud marketing division is the second biggest division and makes up 17.4% of its value. Over the past few years, Adobe has built a comprehensive digital marketing platform that addresses most of the needs of digital marketers. This build-up started in 2009 with the acquisition of Ominiture. Since then, the company has scaled up the functionality and product offering of its marketing platform through organic and inorganic growth. Currently, Adobe offers six products under its marketing cloud solution. The Adobe marketing cloud includes a complete set of analytics, social media optimization, consumer targeting, web experience management and cross-channel campaign management solutions. It generated around $1.12 billion in annual revenues in 2014. Having been built from the acquisition, the business has had a compounded annual growth rate (CAGR) of 83% over last five years. Well positioned in a growing market, this division is expected to witness robust growth in the coming years. Adobe is aiming to increase its revenues from cloud-based marketing solutions by expanding in new geographies and verticals. According to the company, the marketing cloud is easily a $10 billion opportunity. [2] Currently, we project revenues from its digital marketing division to reach $3.54 billion by the end of our forecast period in 2022. Recently, the company augmented its Marketing Cloud solutions with acquisition of comScore’s Digital Analytix business. [3] Considering this expansion and the past growth rate, it is possible for the company to achieve a CAGR of 20% instead of the currently projected 15%. If this were to materialize, Adobe’s revenues could increase to $5 billion, and the stock price valuation can increase by 10%.

Competition Can Drag Growth Down

The digital marketing industry is highly fragmented and vendors are using different methods such as acquiring stratups with novel products to organically developing their core competency. This points to intensifying competition in the industry as each player tries to gain a leg up on others. While Adobe is focused on the technology aspect of digital marketing, it lags the customer service. Forrester states that “some of its partners have begun to complain about Adobe’s cost and complexity, leaving potential openings for competitors”. [4]  Competing players such as Salesforce.com and Oracle are trying to improve their position in the market by leveraging their existing partnerships and offering their solutions as Paltform-as-aService (PaaS). While Adobe is closest to a true PaaS marketing tool, competition is likely to catch up to it. Therefore, it is possible that revenues from its digital marketing division can grow at a slower rate to reach $2.41 billion by the end of our forecast period.  This would result in a 8% decline in Trefis’ estimated stock value.

We currently have a $81.20 price estimate for Adobe, which is in line with the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. Adobe Named Only Leader in Latest Forrester Wave Report, October 29th 2015 []
  2. Digital Marketing, Adobe and $10 Billion Worth of Opportunities, August 18 2014, www.mobilemarketingwatch.com []
  3. Adobe Systems-ComScore Deal Bulks Up Marketing Cloud, November 5 2015 []
  4. Adobe Named Only Leader in Latest Forrester Wave Report, October 29th 2015 []