As many companies are forced to move their workforce online because of the coronavirus pandemic, Adobe (NASDAQ:ADBE) has proven itself both resilient and quietly crucial to the new status quo. Economic uncertainty continues to roil the market, and businesses small and large are finding it hard to keep afloat. Yet Adobe planned ahead, and now, with the coronavirus spotlighting the hardiest and most viable companies, its time to shine has truly arrived.

Adobe offers a wide sweep of product offerings in the cloud. This has not only positioned it perfectly for the sudden digitization of the labor force, but has also brought it to the top among its competitors, with research firm Forrester naming Adobe a leader in both business-to-consumer (B2C) and business-to-business (B2B) commerce. 

Well-known for its Creative Cloud products, such as Photoshop and Lightroom, Adobe also offers data analytics to help businesses analyze and understand their audience, manage their information, and increase customer engagement. Its less recognized but still powerful e-commerce platform, Magento Commerce, provides an excellent value proposition for businesses that have already moved to subscription-style services or deal with complicated order structures. 

An abstract illustration of how cloud computing connects different kinds of data.

Image source: Getty Images.

Subscription revenues take the cake

As a result, this strategic integration of its software offerings into the cloud has brought Adobe steady revenues. On June 11, 2020, the company announced record-breaking annual recurring revenues (ARR) on the back of strong demand for Creative and Document Cloud subscriptions. Through its subscription service, customers can access Adobe software tools without worrying about updates or committing to products they might not need. At the same time, Adobe can cater to its customers' desire for convenience while building upon a strategy to increase profits with high-margin, subscription revenues. 

CEO and President Shantanu Narayen said that "the tectonic shift toward "all things digital' across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis." And Adobe has the numbers to prove it.

Indeed, second-quarter 2020 revenues totaled $3.13 billion, up 14% year over year. However, forecast revenue was $3.16 billion -- a slight miss. This indicates that while online subscription services are flourishing in the new work-from-home era, the tailwind effect of shuttering the economy has affected even a solid, large-cap company like Adobe. In fact, the company withdrew guidance for the rest of the year due to the unknown effect of COVID-19.

Outstripping the competition

Nevertheless, the surge in demand demonstrated by last quarter's results indicates likely continuing income for the foreseeable future, even though competition remains fierce. Adobe has demonstrated that its emphasis on customer experience is key, and it needs to maintain this in order to further capitalize on its current success. How does it stack up against big competitors?

Company

Year-over-year revenue growth (TTM)

Year-over-year growth in cash flow from operations (TTM)

P/E Ratio (TTM)

Adobe

19.3%

14.8%

57

Salesforce (NYSE:CRM)

30.1%

8.4%

--

Oracle (NYSE:ORCL)

(1.1%)

(9.7%)

17.5

SAP (NYSE:SAP)

9.6%

(18.8%)

34

Source: Company filings, S&P Global Intelligence. Trailing-12-month revenue and cash flow growth figures as of each company's most recent quarterly filings. P/E ratios as of June 25.

As shown in the table above, Adobe is growing in an efficient manner, with enough cash flow to fund further growth. Its P/E ratio is higher than its competitors but supported by double-digit increases in revenue. On the other hand, leading competitor Salesforce has been experiencing very high revenue growth, but its costs are also increasing at a fast rate. Given that its earnings have recently dipped into negative territory despite its rapid growth, Salesforce doesn't have any earnings with which to create a P/E ratio. This situates it more as a growth stock, compared to Adobe's confidently plodding value buy. 

In all, Adobe's willingness to listen to its customers and pivot to accommodate changing needs has positioned the company well for further growth in uncertain times. Strong leadership and expanding profitability are key markers of its business strategy, which should prove a solid foundation for long-term, future growth.