On March 27, investors will learn more about software giant Adobe's
CS3 is kind of a big deal
Founded in 1982 by Charles Geschke and John Warnock, Adobe Systems was incorporated a year later, and in 1986 the company went public at a split-adjusted price of $0.17. Fast-forward 25 years and, according to management, the company is on the verge of the single largest unveiling of new products in its history.
At the heart of the launch is Creative Suite 3 (CS3). Essentially, this is a package of integrated software that enables developers to design and publish material in multiple mediums including print, Web, and mobile, all in a seamless manner. One part of the package is Photoshop CS3, which will feature, among other things, an improved workflow allowing designers to complete projects more quickly.
In the call, management did little to hide enthusiasm for the upcoming release of CS3, calling it "revolutionary" and "industry-leading." That's high acclaim. If it can just fall in the ballpark of these high expectations, it should be a very good year for Adobe.
During the question-and-answer session, CEO Bruce Chizen indicated that in total, 13 new applications will be unveiled next week, including 19 different "product configurations," seven "technologies that cut across all of those applications," and two services. That's a bunch! Given the complexity of software these days, one wonders if Adobe took on too much. Instead of having a few solid products, will it end up with 13 average ones? Chizen put those fears to bed, stating, "We've had about a year to get this right. I can assure you that we have gotten it right, and it's well-planned, well-thought-out."
Investors will see the impact soon, as revenues are expected to accelerate throughout the progression of this fiscal year. Second-quarter revenues will be an uptick from the first quarter, and with the foreign-language versions of CS3 set for release next quarter, Q3 will be even higher. In fact, CFO Mark Garrett said that Q3 will be "substantially higher" than Q2 in terms of revenue; management is projecting revenues of $700 million to $740 million in the second quarter. Garrett added that he expects the company to end the year in Q4 with its "highest revenue quarter." In total, Adobe is looking for roughly 15% top-line growth this year.
This might be a good time to point to my colleague Ryan Fuhrmann's recent take on Adobe. In it, he shares his concern over the company's valuation, considering it has a P/E of just less than 28 times 2007 expected earnings, which is higher than the multiples for both Microsoft
Not a Flash in a pan
What has me equally excited about Adobe is its Flash Video Server products. Flash has received a great deal of press lately given the popularity of Google's
News Corp. likes the idea of video on MySpace so much that it has it has inked a deal with GE's
It is safe to say that with more media enterprises bringing their content online, business should remain brisk for Adobe's Digital Video segment. Just how dominant is Adobe's Flash Video? In the Q&A, Chizen pointed out that "most of the video that goes through the Web today" is Flash-driven. And the dominance hasn't just been from the ground up -- it is also happening top-down. He pointed to one statistic that showed that 74% of the video content that comes from broadcast and cable TV and makes its way to the Web is "going out via Flash video."
It is good to see that Adobe is being proactive and not resting on recent success. In mid-2007, the company plans to unveil the latest versions of its video products in Production Studio Suite, which will be available for both Macintosh and Windows platforms. Additionally, it recently linked up with Photobucket.com, a popular website with 35 million users, to integrate Adobe's video editing and streaming technology.
More content and more distribution partners mean more business for Adobe. And an effect that is not easily calculable but is no less present, which was alluded to in the Q&A, is that the popularity of Flash compels content developers, be they amateur or otherwise, to try out other Adobe products like Premiere and After Effects. In total, between CS3 and its Digital Video services, Adobe has a powerful combination for both website production and video delivery that sets it apart from just about every other competitor.
A powerful combination
My colleague made another good point of caution, stating that with new product releases, there are a lot of unknowns -- potential bugs, for one, as well as acceptance rate among consumers. So, although Adobe is about to unveil its largest product offering ever, it may also end up with its biggest headache ever if things don't work out as planned.
Prospective investors can take some comfort knowing that Creative Suite is already a well-respected name in the industry, and CS3 should only make that more so. Given the importance of CS3, I can't imagine Adobe releasing a product of this magnitude if wasn't fully prepared to do so. An additional benefit is that CS3 should be full-speed on Apple's Intel-based Macs, something that can't be said about earlier versions. Given Adobe's long and important relationship with Apple customers, this is another reason to be hopeful for a welcomed response to CS3.
Between CS3 and Flash, Foolish investors have a couple of strong reasons to take a closer look at Adobe.
In a flash, you can dig into related Foolishness on Adobe:
- Adobe's Flashy Prospects
- Adobe's Acrobatic Quarter: Fool by Numbers
- Foolish Forecast: Deconstructing Adobe
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