CA - Adobe: AI Developments Galore

2024-07-11 11:45:52 ET

Summary

• We evaluate if Adobe's continued AI developments in Creative Cloud, Document Cloud, and Digital Experience segments have increased its competitiveness among its peers.
• We found that the company's partnerships with major tech companies have enhanced its product offerings and examined specific partnerships in detail.
• Despite facing competition in the CRM market, we believe Adobe's strong AI capabilities and product integration support a positive growth outlook for the company.

In our previous analysis of Adobe Inc. ( ADBE ), we focused on the generative AI developments in creative software which we expect could boost the market growth at a forecast CAGR of 16.7%, and we believed Adobe is positioned to capitalize on its strengths including a diverse product portfolio, massive scale & resources, market leadership and continued acquisitions.

We reevaluate the company to determine whether it could maintain its competitiveness in Application Software, specifically in creative, PDF and CRM software with new AI product developments spanning across its main segments including Creative Cloud, Document Cloud and Digital Experience segments, which account for 98% of its revenues. First, we assessed the company's competitiveness by compiling recent AI developments and ranked the company against top competitors to derive a competitive factor score to project the company’s growth in creative, PDF and CRM software to estimate its excess market growth. Furthermore, we examined its profitability margins and determined how its new AI developments could affect its margins going forward, specifically focusing on SG&A and R&D which are its largest operating expenses by calculating average tech companies' R&D and SG&A investment in AI to factor into our revised margins projections. Finally, we examined how its AI partnerships with major tech companies provide the company with advantages in its product offerings, distribution, and scale compiling the partnerships and determining whether it provides general benefits or specific benefits to Adobe and its top competitors.

AI Developments Across Segments

In this point, we examine how Adobe’s new AI developments affect the company’s overall competitiveness in the Application Software subindustry, which includes segments across Creative Cloud, Document Cloud and Digital Experience....

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