We raised our fair value estimate for Adobe (ADBE) to $300 per share from $245 after incorporating new assumptions into our model. We are maintaining our wide moat, stable moat trend, medium fair value uncertainty, and Standard stewardship ratings. Adobe remains a cash machine, benefiting from 20%-plus revenue growth, and GAAP operating margins are near 30%. The company approved an $8 billion buyback this year. With the shares trading at a discount to our fair value estimate, we see an attractive point of entry.
The company’s software-as-a-service-based products are bucketed into three segments: digital media, digital experience, and publishing. The first two serve as the growth engine of the business. Digital media houses Adobe’s creative software products for web designers, application developers, photographers, and animators, among others. We believe Adobe has an effective monopoly in the creative software market, which creates durable switching costs as its applications are mission-critical. We also believe a network effect exists in the company’s digital media products. The education system for creative minds relies heavily on Adobe’s products, which propagates a platform that is widely understood and used in the design community.
William Fitzsimmons does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.