Why Adobe’s Revenue Growth Rate Looks Poised To Increase In 2020
Adobe (NASDAQ: ADBE) makes money by selling software for creative content and marketing purposes with a focus on user experience. The company’s products are offered as subscription-based service and through licenses. Adobe competes with Apple, Autodesk, Avid, Corel, Microsoft, Affinity, Quark in its Digital Media offerings, and Google, IBM, Oracle, salesforce.com, SAP, SAS, Teradata, Shopify in its Digital Experience segment.
Adobe’s strong results for the third quarter highlight the resilience of its revenue streams despite an uncertain macro-environment. We highlight trends in Adobe’s Revenues over the years along with our forecast for 2019 and 2020 in an interactive dashboard. We believe that the company’s 2 core operating segments – Digital Media as well as Digital Experience – have significant growth prospects, which will help revenues swell by 24% in 2020 after increasing around 23% for the current year.
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A Quick Look At Adobe’s Revenues
Adobe Has 3 Operating Segments:
- Digital Media: Segment revenue is derived from the sale of subscriptions to Creative Cloud (Photoshop, Illustrator, Premiere Pro, Lightroom CC, InDesign, Adobe XD etc) and Document Cloud (Adobe Acrobat, Adobe Sign and Adobe Scan).
- Digital Experience: Segment revenue is derived from the sale of subscriptions to Adobe Experience Cloud, a cross-channel marketing optimization tool that includes analytics, targeting, campaign management, content delivery and commerce enablement.
- Publishing: Segment revenue is derived from the sale of licenses to legacy products such as eLearning, technical document publishing, web conferencing etc to OEMs.
We expect Adobe’s 3 divisions to report revenue of $11 billion in 2019, with the contribution being:
- Digital Media Revenues = $7.6 billion (68.2%)
- Digital Experience Revenues = $3.3 billion (29.4%)
- Publishing Revenues = $0.3 billion (2.3%)
Adobe’s revenue grew 54.2% over 2016 to 2018 to $9 billion and is expected to increase 53% to nearly $14 billion by 2020.
(1) Digital Media Division revenue growth of $3 billion over the next two years is likely to be driven by Adobe targeting new creative professionals in the U.S. and emerging markets.
Change in Digital Media Revenues:
- 2016 to 2018 – $2.4 billion (total percentage change of 60.5%);
- 2018 to 2020E – $2.8 billion (total percentage change of 44.6%).
(2) Digital Experience Division revenue growth of $2 billion over the next two years is likely to be driven by Adobe offerings to create, consume and measure personalized campaigns and shoppable experiences.
Change in Digital Experience Revenues:
- 2016 to 2018 – $0.8 billion (total percentage change of 49.8%);
- 2018 to 2020E – $2.0 billion (total percentage change of 80.9%)
(3) Publishing Division revenue growth is likely to remain muted due to the products having become mature. This revenue stream has shrunk 7.5% in the last 2 years, and will likely stagnate over the next two.
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