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Headquartered in San Jose, California, Adobe Inc. was founded by John Warnock and Charles Geschke in 1982. The name ‘Adobe’ was a reference to Adobe Creek; a 14.2 mile-long stream that ran behind the house of Warnock in Los Altos, California. Adobe was originally incorporated in October 1983 in California, and later, on May 1997, it was reincorporated in Delaware as Adobe Systems Inc. Adobe held its IPO on the 20th of August 1986, listing on NASDAQ and trading under the ticker ADBE. The stock is part of the Technology sector, in the Software industry, under the Application Software sub-industry.
Adobe started out as a mere technology supplier but has grown to be one of the most recognisable names in the software developing industry, still in 2019. It operates through 3 main business segments: Digital Media, Digital Experience and Publishing. The Digital Media segment provides creative design tools and resources for individuals and businesses to use when creating, publishing or promoting different forms of digital content. The Digital Experience segment provides various solutions that enable efficient creation, management, execution, as well as optimisation of digital advertising and marketing strategies. The publishing segment provides niche solutions and legacy products in areas, such as high-end printing, technical printing and eLearning services.
Adobe revolutionised the print and design industry and arguably dominated it over the years. The company has always sought to lead, or at the very least, follow the industry; and it has managed to do this by maintaining an active portfolio by making strategic direct and indirect acquisitions. Adobe has made over 54 acquisitions in its history, with recent notable deals such as: Omniture ($1.8 billion), an online marketing and web analytics company; Neolane ($600 million), a conversational marketing technology provider; TubeMogul ($540 million), an enterprise company for digital branding; Magento Commerce ($1.7 billion), an open-source modern cloud commerce platform; and Marketo ($4.8 billion), a provider of marketing automation software.
Since going public, Adobe has had stock splits as follows: 2-for-1 on the 23rd of November 1988; 2-for-1 on the 11th of August 1993; 2-for-1 on the 27th of October 1999; 2-for-1 on the 25th of October 2000; and finally, 2-for-1 on the 24th of May 2005.
Adobe stock has had an overall positive trajectory in its entire history. It initially trended sideways in its early trading days, suppressed below the split-adjusted price of $10 per Stock. The tech boom at the turn of the millennium provided tailwinds that pushed the stock to a high of circa $40 by March 2000. The subsequent tech bubble burst drove the stock to lows of circa $8 by August 2002. The stock then turned higher and managed to peak at circa $45 by November 2007, before the 2008 Great Recession triggered a tumble to circa $16 by March 2009. The stock has trended higher since then, and it managed to print its all-time high of $313 in July 2019, before retracing lower to trade at circa $265 in October 2019, with a market capitalisation of $130 billion.
Adobe started paying quarterly dividends in 1989 when it paid out $0.04 per Stock. The dividend amount rose to a high of $0.1 per Stock by 1993, before shrinking to a mere $0.0125 by 2005, when Adobe stopped paying cash dividends altogether. Part of the reason the giant software developer did away with dividend payouts was the associated administrative cost and effort of the process, as well as the need to explore growth opportunities using any available free cash flow. While dividends account for part of the overall capital gains for an investor, the lack of it does not imply a bad stock. Non-dividend paying companies typically utilise the free cash flow to fund aggressive growth opportunities and reduce debt. This leads to significant growth in stock valuations over time, compared to dividend-paying companies. In Adobe’s case, the stock was trading at circa $30 when the company stopped paying dividends, and the company printed its all-time stock high at a price that was almost tenfold by October 2019.
Adobe has been a Wall Street favourite for years now because of its seemingly eternal growth. Still, you should consider the following when trading the stock:
Adobe faces different types of competition in its various operating segments. It has dominated the graphic and creative design scene, but in all its different operating business segments, it faces different types of competitors such as Corel, Foxit, Google, Microsoft, Oracle and CyberLink, among others. It is important to track the performance of these companies in the specific niche markets that Adobe operates in.
Adobe’s ascendancy to the top is courtesy to important new product launches in its history, such as PostScript, PDF and Photoshop. With the company now operating in more niche areas, it is important to watch out for new products or service rollouts. New Adobe ground-breaking products are capable of triggering huge price advances on the stock. But if investors perceive the product negatively or a competitor beats the company on such a launch, the stock may receive massive headwinds.
The Adobe fiscal year runs from December to November, and the company releases quarterly earnings reports for investors to assess the health of the business. The most important figures to look out for are sales growth, operating margin and cash flow. In February 2019, the company made a transition from offering one-time licenses to charging periodic subscription fees. This has predictably had a positive impact on its revenues, but it also increased some associated costs of managing a high subscriber base.
Although primarily a software company, Adobe serves the global market, and it is poised to encounter some legal or public protests that may have an impact on its stock price. Recent incidents that Adobe has had to deal with include an ‘unfair pricing’ petition that was published and signed by 10,000 European customers in 2013, who were paying more than $1,000 more for services compared to their US counterparts, and a 2011 anti-trust lawsuit by a group of 5,000 Freehand graphic designers.
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Adobe is a major player in the enterprise software space, as well as a leader in digital media software with its Photoshop application. It competes against the likes of Salesforce, Oracle, SAP, and IBM and has been very successful during its decades of existence. The stock is well represented by institutional buyers and has been in a strong upward trend for nearly a decade. Anyone looking to profit from the software space simply cannot ignore Adobe as a major trading opportunity, especially on dips and pullbacks in the share price.
There are many opportunities for trading in the software industry, and Adobe shares have been among the top picks for years. While other, smaller companies might see more volatility in their share price, the stable growth in Adobe has made trading it if not an easy task, at least one that seems more predictable. Traders who have the patience to watch the stock charts and target entries on pullbacks have been well rewarded in trading Adobe shares, whether directly or through the use of CFDs.
Adobe shares react quite well to technical signals and indicators, and traders should be able to use a number of their favorite technical analysis tools to find a good strategy for trading Adobe shares. One simple to use strategy is to trade off the 20-period and 50-period moving averages as support and resistance. Day traders can use the hourly charts to accomplish this, while swing traders might prefer to use the daily chart for long-term entries. During uptrends these levels can be used as support during dips, and during downtrends they can be resistance in short-term rallies.