8. Adobe Inc. (NASDAQ:ADBE)
Average Upside Potential: 28.17%
Number of Hedge Fund Holders: 107
Adobe Inc. (NASDAQ:ADBE) offers web design tools, photo manipulation, and vector creation, through video/audio editing, mobile app development, print layout, and animation software. For its flagship products like Photoshop, Illustrator, and Acrobat, the company is a leader in the digital media and content creation industries. The software is used by professionals and individuals alike to design, edit, and manage various types of digital content, including graphics, videos, and documents.
The company reported solid FQ3 2024 results, with revenues reaching $5.41 billion, a 10.59% increase year-over-year. The Digital Media segment fueled this growth with a 12% increase, while the Digital Experience segment grew 12%. Its subscription-based model remains a key strength, contributing $5.18 billion or 96% of total revenue. Adobe Inc. (NASDAQ:ADBE) earned $4.65 per share in the quarter. It has a market share of over 80% in graphic design because it has been developing products for many years.
AI features like Adobe Firefly have played a significant role in enhancing customer engagement and retention. Document Cloud sales reached $807 million in FQ3, an 18% year-over-year increase. While the growing popularity and affordability of AI tools pose potential challenges, its substantial investments in AI development are aimed at maintaining its competitive edge. The successful integration of AI into its products, such as Creative Cloud, Document Cloud, and Experience Cloud, has led to increased adoption and usage.
The company is poised to capitalize on AI through its generative credits model. On October 14, it launched its Firefly Video Generator, a new video generation tool powered by its Firefly AI platform, where users can create AI-generated videos. It also showcased collaborations with major brands like PepsiCo and Mattel who are using Adobe’s AI technology for personalized packaging and customer experiences.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
