Creative Suite 5 Success Important for Adobe’s Stock
Adobe (NASDAQ:ADBE) is planning to begin selling Creative Suite 5, the newest version of its Creative Suite of software, by June 2010. We have already factored in an increase of 3%, from 43% in 2009 to 46% in 2010, in Adobe’s creative software market share based on the expected success of Creative Suite 5.
However, there could be a downside of 5% to our $38 Trefis price estimate for Adobe’s stock if Creative Suite 5 sales fail to live up to our expectations.
Photoshop is a Key Component of Creative Suite
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Some of the popular Creative Software products for Adobe are:
- Photoshop, used for images and animation,
- Dreamweaver, used for web designing,
- Flash Professional, used for interactive rich content, and
- InDesign, used for print layouts and digital publishing.
Adobe’s Creative Suite of software competes with Microsoft’s (NASDAQ:MSFT) QuarkXpress, Apple’s (NASDAQ:AAPL) Aperture and Corel’s (NASDAQ:CREL) Draw. These products are used by creative professionals such as graphic designers and photographers as well as hobbyists to create visually rich print and online content. Such content includes photographs, videos, animations and mobile content.
Adobe’s Share in the Creative Software Market is Cyclical
Adobe typically releases a new version of Creative Suite software every 18 months. Traditionally, Adobe has seen a spike in sales immediately following a new release.
Three Reasons Why Creative Suite 5 Will Be a Success
We believe that Adobe’s Creative Suite 5 will increase Adobe’s share in the creative software market for the following reasons:
1. Backlog of customers waiting for Creative Suite 5 release
Based on the cyclical nature of demand for Adobe’s Creative Suite, we believe there is a backlog of customers waiting to upgrade to version 5 from older Creative Suite versions. Purchases from these customers will help drive Adobe’s share.
2. Ability to handle large amounts of data at faster speeds
According to AppleInsider, Creative Suite 5 will be much faster than the previous version and can handle large amounts of data. For example, a high resolution photograph of 4 gigapixel resolution could be opened 10 times faster with Photoshop version 5. Such features will encourage upgrades to Creative Suite 5.
3. Photoshop has better features for designers
The new version of Photoshop will benefit designers who work on 3D objects and videos. It will have the retouching capability that makes it easier to remove objects from images, without affecting the image quality.
5% downside to Adobe’s stock if Creative Suite 5 doesn’t meet expectations
Although we forecast an increase in Adobe’s share in the Creative Software market, there could be a $1.50 (5%) downside to the $38 Trefis price estimate for Adobe’s stock if Creative Suite 5 sales do not live up to expectations and Adobe’s market share remains stagnant.
You can modify our forecasts for Adobe Creative Software Market Share above to see how Adobe’s stock is impacted by changes to its market share.
For additional analysis and forecasts, here is our complete model for Adobe’s stock.