Adobe (NASDAQ:ADBE) forayed into digital marketing with the acquisition of Omniture in 2009, and currently offers five products under its marketing cloud solution. 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 (Omniture and its products) generates nearly $550 million in annual revenues and makes up 10% of its value by our estimates. However, Adobe is looking to grow this division’s revenue by acquiring companies such as Neolane and expanding its reach. In this article, we look at factors driving the digital marketing platform and Adobe’s product offerings for this space.
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- How Can AdMarketing Cloud Impact Adobe’s Stock Price?
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Drivers For Digital Marketing Solutions
Digital marketing is gaining momentum as companies are increasing their spend on it. According to IT research firm Gartner, companies generally spend 2.5% of their revenues on digital marketing and the figure is expected to rise to 2.8% this year.  Some of the trends that support digital marketing solutions business are:
- Focus on content marketing:- Content marketing is focused not on selling but on communicating brand ideas or insights to a customer. Marketers rate content marketing as the most important opportunity as it pervades all the digital media. 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 marketing platform from companies such as Adobe and IBM continues to rise.
- Advent of online businesses and e-commerce:- With growing Internet penetration, more businesses are shifting from brick and motar stores to online stores. According to Forester, ecommerce sales in the U.S. are expected to reach $370 billion by 2017, which will amount to 10% of total U.S retail sales.  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. Moreover, online advertisers also need a strong platform that can help them discover prices for online ads. Therefore, marketing tools for big data analysis and consumer experience are gaining traction among marketers.
- 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 amount of 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 $41.68 billion this year and climb to well over $100 billion by 2017.  As a result, mobile-first marketing strategy is gaining traction across the globe. However, since mobile audience is fragmented by devices and platforms, marketers face a difficult task to distribute the content across these devices and screen sizes. We expect that this will drive the innovation cycle for omni-channel marketing tools. However, we believe that incumbents in mobile marketing platform will continue to gain market share in the near future.
- Social marketing to gain traction:- The rise of social networking sites such as Facebook, Instagram 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 has a comprehensive digital marketing platform that addresses most of the needs in digital marketing. According to Ovum, Adobe’s digital marketing platform currently leads the race to become the enterprise digital marketing platform provider of choice.  We believe that this platform provides a cost effective digital marketing solution for companies that can manage marketing campaigns across different channels and devices.
Adobe Analytics is a big data analysis tool that helps CMOs understand the performance of their businesses across all digital channels. Adobe Experience Manager is a content management platform that enables organizations to deliver carefully tailored customer experiences across web and mobile channels. Adobe Media Optimizer provides campaign forecasting and targeted ad delivery for data optimized advertising. Adobe Social allows marketers to create, publish, monitor and respond to conversations, measure results, and connect social activities to business results. We expect Adobe’s marketing platform to continue to lead the digital marketing solutions market in the short term, as it enjoys strong brand recognition.
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. Currently, we project revenues from its digital marketing division (Omniture and its products) to reach $1.2 billion by the end of our forecast period. However, if the revenues grew to $2.5 billion by the end of our forecast period there can be 15% upside to our price estimate.
We currently have a $42 price estimate for Adobe, which is around 15% below the current market price.Notes:
- US Digital marketing spending report, 2013, April 13 2013, www.gartner.com [↩]
- Forrester: U.S. E-Commerce to Rise 13% This Year, March 13 2013, www.forbes.com [↩]
- Mobile Devices to Boost US Holiday Ecommerce Sales Growth, September 5 2013, www.emarketer.com [↩]
- Ovum reveals IBM and Adobe are ahead in the race to become the enterprise digital marketing platform provider of choice, August 21 2013, www.ovum.com [↩]