Can Adobe Survive Without Flash?

At a trailing P/E ratio of over 60, Adobe (ADBE) definitely looks like an expensive stock. Also, with the growth of Adobe’s Flash player slowing down, investors may find it hard to justify the stock’s valuation. However, in my opinion, Adobe’s valuation is justified as the company has still a lot to offer to investors and clients.

Robust cloud subscriber growth

Adobe Systems reported strong first quarter results. Despite the fact that Adobe’s most significant flash player platform is going down at more than expected pace, the company’s revenue came in at $1.38 billion, recording year over year growth of 24.7 percent.
On the other hand, the company shared net income of $254.3 million, a surge of $169.4 million compared to first quarter of 2015.

A few years ago, Adobe protested against Apple’s no-Flash policy. However, with time, Adobe adapted to the unpleasant conditions, shifting its focus towards other numerous growth and top-line drivers.

Adobe’s Flash player receives acquires the irregular security update, but the company is not developing new thrilling features anymore. The company has renewed the Flash Professional Content creation tool and now it is known as Adobe Animate CC. And most significantly, the content created via Animate CC can be published directly as HTML 5 code.

However, investors need not worry about dying Flash player, as the company’s subscriber count for Creative Cloud subscriptions is growing at a rapid rate. The company successfully managed to add a whopping 798,000 new Creative Cloud subscriptions in the first quarter, bringing overall Creative Cloud subscribers to almost 7 million. The company also detailed that around 30 percent of subscribers are new to Adobe, and numerous are approaching the company via its prevalent mobile applications.

Apart from the robust implementation of Creative Cloud, the company is also generating strong revenue from the digital media segment, as its revenue from digital media segment surged 33 percent y-o-y. As an outcome of this thrust, Adobe was able to surge its Digital Media ARR growth aim for the fiscal 2016 to $1 billion, $262 million more than its previous projection.

This would account for a total of screaming $4 billion digital media ARR for 2016. It creates a great opportunity for stockholders to generate profit from the company’s progressive strength displayed by its Digital Media ARR force and escalated guidance.


Clearly, Adobe has enough ammunition to survive the slowdown in Flash sales. The growth of cloud segment and digital media should keep Adobe going for a few more quarters. Thus, I believe the stock is still a buy.
Published on Jun 21, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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