How Much Revenue Can Adobe’s Marketing Cloud To Topline By 2018?

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ADBE: Adobe logo
ADBE
Adobe

Adobe (NASDAQ:ADBE) forayed into digital marketing with the acquisition of Omniture in 2009 and currently offers eight products under its marketing cloud solution that includes Audience Manager, Campaigns, Experience Manager, Social, Primetime and Media Optimizer. The Adobe marketing cloud includes a complete set of analytics, social, advertising, consumer targeting, web experience management and cross-channel campaign management solutions.

Currently, the digital marketing arm of Adobe generates nearly $1.3 billion in annual revenues and makes up 28% of its value by our estimates. However, Adobe is looking to grow this division’s revenue by acquiring companies such as Livefyre and expanding its reach. In this article, we look at factors driving the digital marketing platform and Adobe’s product offerings for this space.

Check out our complete analysis of Adobe

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Drivers For Digital Marketing Solutions

Digital marketing is gaining momentum as companies are increasing their spending on it. According to IT research firm Gartner, companies generally spend 11% of their revenues on digital marketing in 2015. [1] Some of the trends that support digital marketing solutions business are:

  1. Focus on content marketing: – Marketers rate content marketing as the most important opportunity as it pervades all the digital media and helps an advertiser in communicating their brand idea. As Internet penetration grows, marketers are looking to leverage content such as videos, infographics, articles and e-mails to deliver their message to customers across different channels. However, most of the marketers are focusing on content creation rather than content optimization. We believe that companies need to focus on placing relevant content that can be personalized, as this can increase web traffic and ad revenues. Therefore, demand for a marketing platform from companies such as Adobe continues to rise.
  2. Advent of online businesses and e-commerce: – With growing Internet penetration, more businesses are mushrooming online than on brick and mortar stores locations. According to Forester, e-commerce sales in the U.S. are expected to reach $523 billion by 2020. [2] However, e-commerce businesses such as shopping websites need to understand the customer’s buying behavior and preferences to boost their sales. This calls for a digital marketing platform that can analyze user data to enhance user experience and facilitate higher sales. As a result, online advertisers need a strong platform that can help them improve the user experience. Therefore, marketing tools for big data analysis and consumer experience are gaining traction among marketers. Adobe stands to gain a significant portion of this revenue stream as Adobe Experience Manager enables organizations to deliver carefully tailored customer experiences across web and mobile channels.
  3. Increase in smart mobile devices (SMD): – First time users in many countries are logging onto the Internet using smart connected devices. According to eMarketer, the time people spend on a mobile device is growing 14 times faster than desktop usage. Additionally, mobile commerce (m-commerce) is becoming a prominent channel for commercial transactions. eMarketer forecasts that retail m-commerce sales will reach $123 billion this year and climb to well over $242 billion by 2020. [3] As a result, a mobile-first marketing strategy is gaining traction across the globe. However, since the mobile audience is fragmented by devices and platforms, marketers face a difficult task in distributing the content across these various devices and screen sizes. We expect that this will drive the innovation cycle for omni-channel marketing tools. However, we believe that incumbents with a mobile marketing platform will continue to gain market share in the near future.
  4. Social marketing to gain traction: – The rise of social networking sites such as Facebook, Twitter, Instagram, Snapchat, Yelp and LinkedIn is providing marketers opportunities to interact with audience in innovative ways. Social media marketing is akin to word of mouth marketing by which readers are encouraged to share curated content on their social network. Currently, marketers use over four social media channels to engage customers. However, as social media marketing gains traction, marketers are expected to leverage additional social media channels. We believe that multi-channel social media engagement strategy will drive growth in digital marketing platform that can track and deliver value.

Adobe’s Digital Marketing Platform

Adobe is aiming to increase its revenues from cloud based marketing solutions by expanding in new geographies and vertical markets where it has a strong presence.  Based on the underlying industry, we estimate that the total addressable market (TAM) for Adobe’s marketing cloud will be over $417 billion by 2018.

Total Addressable Market For Digital Marketing Unit Value
Revenue In 2018Table 1 $ Bil 3031
Marketing Budget As A % of Revenue % 12%
+ TAM from Underlying Industries $ Bil 363.72
+ Content Marketing Revenue $ Bil 54
= TAM for Digital Marketing In 2018 $ Bil 417.72
Table 1 Total Revenue For Underlying Industries Unit Value
+ Total E-Commerce Revenue In The World^ $ Bil 2356
+ Total M-commerce Revenue In World^ $ Bil 626
+ Social Media Ads Revenue* $ Bil 49
= Total Revenue In 2018 $ Bil 3031
^ From GSM Arena Report
*Extrapolated from Emarketers News Article

Currently, we project revenues from its digital marketing division to reach $2.29 billion by 2018 or 0.55% of the TAM. However, if the revenues grew to $3.0 billion or 0.75% of TAM in 2018 and to 7.4 billion by the end of our forecast period in 2023 (instead of the currently projected $4.29 billion), there can be 25% upside to our price estimate.

We currently have a $104 price estimate for Adobe, which is around 2% above the current market price.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Adobe

 

Notes:
  1. Gartner Survey Reveals That Digital Marketing Is Now Mainstream, November 19 2015, www.gartner.com []
  2. Online sales will reach $523 billion by 2020 in the U.S., January 19 2016, www.internetretailer.com []
  3. Mcommerce’s Rapid Growth Is Primarily Coming from Smartphones, May 4 2016, www.emarketer.com []