Revenue has been in a solid uptrend, but the move to subscription might ruin the trend superficially. Looking at cash flow will solve this problem. The number will be in cash from operations, but might have a separate line item such as cash received as deferred revenue or something similar.
Services are as good as goods
The “as a service” model is being used by Amazon.com, Inc. (NASDAQ:AMZN) as well. I like the leasing of compute capacity a lot. “Infrastructure as a Service” is a phrase that strikes me as one of most powerful I have heard regarding tech. The implementation might be more impressive than the concept itself, but the idea of leasing out infrastructure, which can cost millions or more, is amazing. When it comes to products that require servers, the upfront cost for infrastructure that the company may or may not need has to be budgeted for.
If you develop a fantastic product, the demand might outstrip your current capacity. Unless you have a large amount of capital to take the upfront risk, it is not feasible. If I create an application, I might think I get 100 users in the first few months, but if the software is highlighted in a large magazine, I might start seeing hundreds of users or more right after the article breaks. It would be terrible if those people could not use the application.
Revenue from infrastructure as a service is rolled into “other revenue” on the earnings reports, as is everything in Amazon Web Services. The growth at web services is expected to be huge, and could finally lead Amazon.com, Inc. (NASDAQ:AMZN) to glorious profits. It is growing very rapidly, and I expect it to become an increasingly important part of Amazon’s business.
Conclusion
I have no idea what I would do with these stocks.
Amazon.com, Inc. (NASDAQ:AMZN)’s valuation has kept me on the sidelines for a very long time. Both Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOG) innovate like crazy. They are just out of my normal price range in absolute terms, but I might check out some options if they are priced right. Adobe Systems Incorporated (NASDAQ:ADBE) strikes me as a straight long position. However, the risk in Adobe is if it does not attain its target of 1.25 million subscribers by the end of 2013.
But then, Adobe Systems Incorporated (NASDAQ:ADBE) is probably most in line with my natural proclivities. The transition it is undergoing creates opportunity, especially if the stock gets some short-term bad news, while the long-term picture stays intact. The market tends not to think long-term, at least lately, and that creates opportunity.
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