Somebody Should Buy Adobe

Adobe Systems (Nasdaq: ADBE  ) can Photoshop its second-quarter results all it wants. I'm still going to be disappointed by these numbers, even if you gloss over a few of the biggest blemishes.

The maker of software for creative professionals reported a 19% year-over-year revenue gain at $887 million and $0.40 in GAAP earnings per share -- up from $0.25 per share last year.

Growth like that would be awesome if the reporting company was a stagnant giant like Oracle (Nasdaq: ORCL  ) or IBM (NYSE: IBM  ) . Those big boys are so massive that they pretty much have to buy their growth these days rather than earning it organically.

But for Adobe, it's a letdown. The annual sales growth in the last three quarters was 41%, 34%, and 37%, in that order, so a mere 19% is a very weak trend.

And where management waxed poetic in recent earnings reports about demand for its software products, there was nary a product name mentioned this time in the press release. Instead, CEO Shantanu Narayen focused on "the product mix and geographic diversity of our business." Again, that's fine for a global powerhouse like IBM or Hewlett-Packard (NYSE: HPQ  ) , but less so for an inveterate but still not-too-huge operation like Adobe, where the "proliferation of digital content" is supposed to drive explosive growth even here in the U.S.

Color me unimpressed by Adobe. Is the company lowballing us to set itself up for a buyout by some rich rival in digital media, like Apple (Nasdaq: AAPL  ) or Microsoft (Nasdaq: MSFT  ) ? Nah, too much conspiracy theory for my tastes. All the same, I wouldn't be surprised to see this corner of the market consolidate a bit -- starting with Adobe.

Further Foolishness:

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure can paint a pretty picture in Photoshop or Paint Shop Pro.


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  • Report this Comment On June 18, 2008, at 11:52 AM, richardgreena wrote:

    I have been familiar with Adfobe since the early days of POSTSCRIPT printing.

    I would hate to see a good technical company like Adobe get swallowed up in a "big business" corporation.

    Too many technical innovators have been swallowed up already.

    We need these small to mid-sized

    companies to survive, and to continue to

    innovate.

  • Report this Comment On June 18, 2008, at 6:19 PM, rkresge wrote:

    I would like to see the revenue gains for the fool. I actually wrote more and then noticed the "Please be respectful with your comments. Review our Fool's Rules". I can only say that the Fool writing this article should be respectful, read the rules and shapeup. The Fool could change it's name to Idiot.

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