(Before you dive in for the news everyone is looking for, take a second to check out my colleague Stephen Ellis' write-up on Adobe's
Fool on Call enables us to dig deep into a company's conference call looking for important developments in the business's operations. This is especially apparent with Adobe this time around. I had a chance to extract three critical updates relating to some of the biggest companies in the Web business from the question-and-answer portion of Adobe's third quarter-earnings conference call. We will focus on these three areas:
- Microsoft and Vista
- Apple and Mactel
- YouTube, Google, MySpace, and Web video
Casting a cautious eye on Microsoft
Doesn't sound good, does it? If you thought it was a major concern, you wouldn't know it from Adobe CEO Bruce Chizen's remarks: "We have for many years been anticipating the creation of PDF to [become] much more of a commodity." Well, that's little comfort, right? So how does Adobe plan on maintaining its position in the PDF segment? Think TiVo
In a recent Fool on Call for TiVo, a Motley Fool Stock Advisor selection, management pointed out that one of the ways it plans to combat generic DVRs is by providing superior functionality. Look for Adobe to keep its King-of-the-PDF-Hill status in much the same way. Chizen added, "Over the last few years, we've been adding capabilities like digital signature, like highlighting, like annotations, like forms, and other collaboration features" that deepen the value of the Acrobat line.
In fact, Chizen said, when taking the Acrobat suite as a whole, the PDF-specific software in Acrobat Elements comprises only 1% or 2% of its overall business. This led Chizen to conclude that although Microsoft must be monitored anytime it enters a related business, ensuring it does not "unfairly take advantage of [its] monopoly," as it currently stands its PDF creation "is not a major risk to Adobe."
On the contrary, there is reason to believe that the new Vista operating system will actually create a nice influx of consumer-related sales for Adobe software. Chizen pointed out that unlike the transition of Macintosh G4 and G5 chips to "Mactel" (Mac computers based on Intel chips), "the migration from Windows XP to Microsoft Vista for our consumer will be a much more seamless migration."
Reconnecting with Apple
This leads us to Apple
Regrettably, not until Creative Suite 3 (CS3) hits stores shelves in the spring will sales in this segment pick back up again. Considering that CS3 will be the first Adobe software fully compatible with Intel-powered Macs, you have to wonder whether Adobe is missing out on big sales opportunities right now, given the iMac's popularity. Chizen remains optimistic, stating, "There is a lot of pent-up demand, and I believe that a lot of the revenue that we're not getting this quarter, that we're not going to get in Q4, that we're not going to get in Q1" will eventually "show up in CS3 over its life."
Web video craze
As big as the Apple and Microsoft names are, the bit of news I found most intriguing dealt with the rapid rise of Adobe's Flash system to the top of the Web-video food chain. If you've spent any time on News Corp.'s
Adobe is able to capitalize on its gains against competitors like QuickTime and Real Media in three ways. First, it can employ "a collection of authoring, editing, and enhancement" tools that producers can use to edit and create video. Also, Adobe's server technology makes video streaming "much more efficient." And the third way Adobe makes money from Flash is via the hobbyist looking to "edit and package" videos for websites like YouTube.
Foolish final analysis
After digging deep into Adobe's latest earnings conference call, we find a company that appears well-positioned to take advantage of three important growth areas: Microsoft Vista-enabled operating systems, Apple Macintosh systems, and the burgeoning Web video biz. I have no reason to doubt management's optimism in these three segments. Apparently, neither does Wall Street, since shares have spiked 40% from recent lows. Stephen Ellis still cautions investors to look at Adobe's valuation before taking the plunge, but there is certainly no reason to take this one off your watch list.
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