Adobe Creative Cloud
The Digital Media segment (the majority is Adobe Creative Cloud) is the one that we are most bullish on. This is the segment that offers the famous creative cloud service subscriptions such as Adobe Photoshop, Illustrator, and After Effects. If you look underneath the trunk you'll find that the Creative Cloud is a well-oiled machine. Let's look at some numbers. The Creative ARR (which includes creative cloud subscriptions + large organization contracts) increased to $9.87 billion exiting the third quarter of fiscal 2021. This is an increase of 12.4% compared to fiscal 2020. If you look at the latest quarter, this segment increased 21% compared to the same quarter last year. Recurring revenue is king, and the Creative Cloud is an essential piece that provides stability and growth long-term. This segment is basically the bread and butter on an all-you-can-eat buffet.
Document Cloud
Adobe is also a market leader with its Document Cloud offering. This is built around their Adobe Acrobat family of products, which include the famous Acrobat Reader and other cloud-based document services such as Adobe Sign. With Adobe Sign users have the ability to automate the process of eSigning documents. One major player that comes to mind is DocuSign (NASDAQ: DOCU). While DocuSign is a strong competitor, we believe that this isn't a winners take all segment.
The Document Cloud revenue in the third quarter of fiscal 2021 was $493 million, up from $375 million in the third quarter of fiscal 2020, representing 31% year-over-year growth. Even though these numbers may include an extra boost of the Covid-19 pandemic, it is a sector that we believe will continue to grow as companies keep automating. All in all, solid growth numbers with a bright future.
Acquisitions
Adobe is exceptional when it comes to acquisitions. Major ones that come to mind are Photoshop (1995),Macromedia (2005),Omniture (2009),Behance (2012),and Magento (2018). Their latest move? Frame.io. In August 2021, Adobe entered into a definitive agreement to buy the cloud-based video collaboration platform for $1.28 Billion. This acquisition will make Adobe strong in video collaboration by enabling real-time footage upload and in-line cooperation within a team. Whether this latest acquisition will perform as expected is yet to be seen, but looking at Adobe's acquisition track record, we would not bet against it.
Conclusion
We expect Adobe to keep executing and growing their core business while at the same time acquiring strategic companies that add value to their existing offering. At current levels, we are buying and HODL'ing.
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