![]() We estimate that the blended ARPS for the company was $27.85 in 2016. While access to the complete Creative Cloud suite costs $74.99 per month, access to standalone Photoshop is priced at $9.99 per month. The company’s average revenue per subscriber consists of a blend of subscribers that have enrolled in different levels of Cloud services. This figure represents 78% of the 24 million TAM. We estimate that the subscriber base will continue to grow at a robust CAGR of 10.5% through 2023 and add close to 7 million subscribers. For 2017, we expect Adobe to exit with 11.2 million subscribers for its CC services, which translates into a growth rate of 27% over 2016’s 9.37 million. We also estimate that the TAM will grow to close to 25 million by the end of our forecast period in 2023. While Creative Cloud contributed nearly 56% to Adobe’s revenue in the first quarter of 2017, we estimate that the total addressable market for Adobe’s creative products stood at 21 million users in 2017. The key drivers for this division are the average revenue per subscriber and total Creative Software market. The Creative Cloud division makes up 52% of Adobe’s value, according to our estimates. In this note, we explore Adobe’s various verticals that are driving our $63 billion valuation of the company. We expect that the launch of new features and functionality should help the company to improve its Creative Cloud subscriber base and revenue from Marketing Cloud. The company plans to unveil new Adobe Sensei capabilities at the Adobe Summit. Sensei is a unified AI platform that will help users navigate across its Creative Cloud, Marketing and Document Cloud services. In its latest earnings announcement, Adobe said that its artificial intelligence and machine learning framework Sensei, which was introduced at the annual MAX conference last year, has witnessed widespread adoption. The improvement in margins in 2016 and Q1 2017 has also prompted us to revise our gross margin estimates upwards by 100 basis points across verticals. Furthermore, based on the company’s guidance, we have revised the revenue growth rate for the Adobe Marketing Cloud division to 26% in 2017 and a CAGR of 17% through the end of our forecast period. ![]() The 24% upward revision in our price estimate was driven by the widespread adoption of Creative Cloud and the migration of Creative suite users to CC. Based on the company’s guidance, we have revised our price estimate for the stock from $107 to $132, which is about in line with the market price.
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