When it comes to creative software, Adobe (ADBE 14.51%) is the 800-pound gorilla that no other company truly rivals. The company is most well known for its creative suite subscription bundle, which includes popular media editing applications such as Photoshop, Illustrator, and After Effects. However, in recent years, the company has successfully expanded into marketing software and cloud collaboration tools.

Adobe stock has performed extremely well in recent years, and despite the run, there continue to be reasons to be bullish. Here are the top three reasons I own this stock for the long term and continue to buy it on dips.

ADBE Chart

Data by YCharts.

1. Impressive cash flow from creative software

My favorite reason for owning Adobe is the foundation offered by its creative software business. With no major competitors operating at its scale, the business is still growing at an impressive rate and delivers an eye-popping segment gross margin exceeding 90%.

Adobe's crown jewel is its digital media segment, which includes the creative software business as well as the document cloud business (more on that later). The company's flagship creative suite product is a subscription software bundle that includes over 20 applications for various media editing use cases, including Photoshop for images, InDesign for publishing, and Premiere for video. Depending on the package, subscribers also gain access to cloud storage and other sharing and collaboration features.

The creative suite bundle is priced around $50 per month for all the apps, but users can subscribe to individual apps for $10 to $20 per month, depending on the product. The bundle containing the full suite is an attractive deal and unmatched by competitors, because it is so comprehensive. For example, competitors may have a killer photo editing or video app, but no one has great apps for everything packaged together at a relatively affordable price. This has made the creative suite a must-have for many serious media professionals and cemented Adobe as the clear leader in the industry.

Adobe Digital Media Segment 2018 2019
Revenue $6,325 million $7,707 million
YOY revenue growth % 26% 22%
Segment gross profit $6,076 million $7,417 million
Gross margin 96% 96%

Data source: Adobe financial reports. YOY = year over year.

To say Adobe's digital media segment numbers are impressive is an understatement. The segment has grown revenue and earnings at a double-digit rate for years, although growth has decelerated recently. High profitability allows Adobe to reinvest in its business and return capital to shareholders.

In fact, Adobe has taken full advantage of its cash flows from the digital media segment. In fiscal 2019, Adobe spent $1.9 billion on research and development and $3.2 billion on share repurchases. The company has also made some strategic acquisitions in the past. These investments have only fortified the business, making its competitive position stronger over time and ensuring it will have plenty of free cash flow to distribute in the future.

2. Leader in digital marketing software

In addition to its creative software business, Adobe also offers marketing software that it houses under its Experience Cloud.

The Adobe Experience Cloud is enterprise software for orchestrating and managing marketing programs and advertising campaigns. There are a number of use cases, including the ability to purchase advertising inventory, measure campaign results, send personalized marketing emails, track customer engagement with digital marketing, and more. In a nutshell, the Experience Cloud is an end-to-end marketing and advertising platform used by businesses that want to optimize their engagement with customers.

Marketing software is a huge market, and Adobe faces fierce competition from salesforce.com, in addition to many smaller companies. But like creative software, the full-product suite and capabilities that Experience CLoud offers in a single bundle makes it a market leader.

Marketing software is very much a growth business for Adobe. In 2014, the segment only generated $1.4 billion of revenue versus $3.2 billion in 2019. However, the Experience Cloud segment only generated a 57% gross margin versus 96% for digital media in the most recent fiscal year. The company believes revenue and profitability will rise over time as investments pay off and user growth continues.

female editing a photo at her computer

Image source: Getty Images.

3. Growth from document digitization

Adobe has a third pillar to its growth story called the Document Cloud. The Document Cloud is a product suite that includes PDF publishing tools, document storage, and remote work collaboration tools. Needless to say, the Document Cloud has been a huge beneficiary of the coronavirus pandemic as cloud tools and work-from-home solutions have been in high demand.

DocuSign is another company that has been able to capitalize on the trends in digital document storage and collaboration. Its electronic signature technology has enabled businesses to legally obtain digital signatures to close deals remotely. DocuSign has seen demand for this service soar in 2020, which has also been a boon to its stock price.

ADBE Chart

Data by YCharts.

Investors may not be fully aware, but Adobe now has a competing product called Adobe Sign within its Document Cloud. Adobe Sign saw a 175% increase in usage year to date as of the fiscal second quarter. Now that digital documents and virtual signatures are big business, Adobe is well-positioned to serve this market as its offerings fits nicely within the company's existing PDF solutions and cloud storage products.

Both DocuSign and Adobe will likely be long-term winners in this market, although DocuSign should be worried about Adobe potentially stealing market share in the future as it has proven to be a tough competitor.

Multiple engines powering long-term growth

Adobe is now one of the world's largest software companies, and every year, it continues to impress investors with how much it is able to grow and find new markets for its solutions. As a long-term shareholder, it is great to see that the company has multiple growth levers -- if one segment underperforms, others can pick up the slack.

The company has also proven its ability to generate significant cash, which combined with its leadership positions in growing markets, makes for a winning combination for investors.