Adobe Inc. (ADBE) Overview
Adobe Inc. (Adbe) is a world-famous software company, primarily engaged in the SaaS distribution of imaging-related products - PhotoShop, InDesign, Premiere Pro, etc. It was founded in 1982 in California, employs more than 30000 people, and its annual revenue exceeds 20 billion USD. It is present in every country in the world, and its software is used by millions, primarily for creating works of art. The trademarked format of Adobe Inc. (ADBE) is PDF.
Market Cap: 198 billion USD
Investor Relations: https://www.adobe.com/investor-relations.html
📒Table of Contents📒
〽️Market segment analysis〽️
The digital media segment includes almost everything related to graphics, video editing, content production, social media marketing, and management of social platforms of sites – FB, YouTube, Insta, TikTok. Typically, this is done by marketing agencies or private individuals – freelancers – who are typically contracted for unique projects, for example, designing and implementing a media campaign, a website (at least on the graphics side). Since these jobs are basically performed on a unique contractual basis, the work is not uniform over time. This is why the revenues of companies working in the SaaS – Software as a Service, more on that later – model, such as Adobe Inc. (ADBE), can fluctuate. Example: a graphic designer buys a license for one month, designs as many graphics as are needed for two projects, and then pauses work for one month.
So there may be breaks in the continuity of revenue generation, and marketing costs are typically costs that are easy to contain because they do not belong to the SG&A – Sales, General and Administrative – segment, so they are not critical for business continuity. The opposite is also true, revenue can grow faster if, for example, there is a major event – such as a soccer World Cup, a Super Bowl – that requires much more visual content. In other words, although these types of expenses are mostly flat, there can be fluctuations in them, depending on the market situation.
Until the early 2000s, most software was boxed products, but since 2013, almost all Adobe programs have moved to the cloud – Creative Cloud – and the company has switched from boxed products to SaaS – Software as a Service.
What is the SaaS model?
💡SaaS model – subscription based – is the sales form where customers purchase an electronic license as part of a subscription at certain intervals – monthly, annually, etc. – and in return receive continuous software updates and developments. The software and its data are accessible from the cloud, meaning they are owned by the company, not the customer.
🛑The older business model was the sale of boxed products, where customers received a physical product - a box with a data carrier inside - which could be sold at a higher price at the time, but later it was more difficult to sell other services associated with the software, and the software black market flourished. In this case, the software runs locally on the customer's hardware.
🤔The logic behind this is that in the SaaS model, you can't copy the data from boxed products, crack the software, and use it for free. This has scaled up SaaS companies nicely and eliminated cracked versions, eliminating piracy. Adobe Inc. (ADBE) has transitioned to this solution almost 100% over the years and has dominated the graphics market. In a sense, Adobe Inc. (ADBE) has become the market itself, and now it seems to be slowly losing share, as you will see later.
It is also worth mentioning that all graphic designers – that is, those who earn their living with this – that I know use Adobe products. PhotoShop – image editing –, Illustrator – vector graphics –, InDesign – publishing – software used every day and the unique Adobe Inc. (ADBE) formats – e.g. PSD – are also widely used. But there are competing applications, for example CorelDraw – an Illustrator alternative – in vector graphics, but there is the free GIMP – an alternative to PS –, Sony Vegas for video editing and I could list more. Among web-based editors, the name Figma is increasingly appearing, the company will be discussed later.
Adobe Inc. (ADBE) Digital Media's software is bundled under the Creative Cloud suite. Adobe software has been cloud-based for about 12 years. This has had two important effects: it has eliminated pirated software and generated recurring revenue, which has pushed margins skyrocketing.
📰However, average users do not use these software, but those that can be used to perform simple, quick graphic work. After all, many more people post on Facebook, YouTube, and Instagram than there are graphic designers, and these users use common formats. You don't need to buy expensive Adobe software for this, but you can use Canva or Place It, which can be used to edit advertisements, mock-ups, and tables. AI-based image generators are also very popular - e.g. Midjourney, whose Adobe Inc. (ADBE) equivalent is Firefly - and web applications that perform simple operations, such as RemoveBG.
The problem is that platforms like YouTube also offer some level of editability. Of course, these do not even come close to the capabilities of Adobe Inc. (ADBE) products, but they probably meet the needs of the average person. However, my own experience is that people stick to their well-proven work environment, templates, settings and are reluctant to change these software, which is reflected in quite high switching costs. However, this market is a legacy business, which Adobe Inc. (ADBE) has completely exploited, but there is only limited growth potential in it (there are still driving forces, such as population growth, digitalization, increased content consumption, etc.). However, the digital customer experience is a completely different matter.
The Digital Experience market is mainly concerned with digital marketing, customer experience management (CXM), data-driven analytics, and AI-powered automation. This segment primarily offers solutions to enterprises that help them optimize digital customer relationships and interactions. It includes content management (CMS), digital asset management (DAM), and the like.
Digital Media Market
- Market size and growth: In 2023, the global digital media market size was estimated at approximately USD 833 billion. By 2030, the market is expected to reach USD 1902 billion, growing at a CAGR of 12.8% (Grand View Research). A subset of this is the segment of graphics programs dominated by Adobe.
- Regional data:
- United States: The digital media market in the US is expected to grow at a CAGR of 11.1% between 2024 and 2030 (Grand View Research)
- Europe: The market could grow at a compound annual growth rate of 12% between 2024 and 2030.
- Asia-Pacific region: This region is expected to grow the fastest, with a CAGR of over 14% between 2024 and 2030. (Grand View Research)
Digital Experience Platforms Market
- Market size and growth: In 2022, the global market for digital experience platforms was approximately USD 11 billion. By 2030, the market is projected to reach USD 30.41 billion, with a compound annual growth rate of 11.9% (Grand View Research).
- Regional data:
- United States: In 2023, the market for digital experience platforms in the US was worth $3.9 billion. By 2030, the market is expected to reach $8.4 billion, growing at a CAGR of 11.5% (Grand View Research)
- North America: This region accounted for the largest share of the market in 2022, with a share of 43.7%.
Overall, it is likely to be realistic to assume a CAGR of 11% for both market segments.
🙋♂️Adobe Inc. (ADBE) Specialties🙋♂️
In this section, I examine what specialties the analyzed company has, what its position is in the market, and whether it does anything differently than its competitors. If so, what and how, and what impact does this have on their operations.
Adobe Inc. (ADBE) is a software company that has had a monopoly on graphics software for years. Many people receive training in this software several times in their lives, even as part of their higher education.
What exactly makes up the software universe of Adobe Inc. (ADBE) can be understood based on the following list:
- Creative Cloud (image and video manipulation software): Adobe Photoshop, Adobe Illustrator, Adobe InDesign, Adobe Premier Pro, Adobe Express, etc.
- Apps: Firefly web app, Firefly services, Adobe Acrobat, Adobe Reader
- Data sources: Acrobat Liquid Mode, AEP AI Assistant, Firefly
- Document Cloud: Adobe Acrobat, Reader etc. proprietary format: PDF, PostScript (the portable format)
Of course, they have other products – fonts, for example – that are much less important, unlike, for example, the fact that almost everyone uses PDF as a non-modifiable, text file format. In fact, offices use the PDF-A format because it is the only solution for archiving files and loading documents into some electronic systems.
💰Adobe Inc. (ADBE) generates its revenue from 2 main segments:
- Digital Media: 70-75%
- Digital Experience: 25%
Digital Media includes various image and video manipulation software, but their growth is lower, simply because the entire market has been absorbed by Adobe Inc. (ADBE).
💵There are also disruptive effects here, as in September 2022, Adobe wanted to acquire Figma for 20 billion USD, which was due to Figma's rapid growth.
The new company was so big that it could have threatened Adobe Inc.'s (ADBE) monopoly in the long term. However, regulators were not so happy about the acquisition and began to investigate the acquisition. In December 2023, Adobe Inc. (ADBE) withdrew from the Figma deal, which ended with a $1 billion settlement. In 2022, the company had revenue of $200 million (at which time it would have been acquired), while in 2024, this had already jumped to $700 million, meaning it is growing rapidly, which in itself could pose a threat to Adobe.
The previous example shows that Adobe Inc. (ADBE) is acquiring or trying to acquire anyone who has a new idea in the digital media sector and can grow big enough. With these acquisitions, Adobe Inc. (ADBE) continues to remain the “de facto standard” in content production, making it an unavoidable player in the market. The company is also very strong as a brand, the 17th most powerful in the world in 2024 (Interbrand), which was valued at almost $40 billion. On the same list, Porsche AG (P911) only ranks 40th, which I also analyzed: Porsche AG (P911)
Adobe Inc. (ADBE) software is so popular that it is specifically considered educational material at most American universities, so students are inherently attached to the software package, as they are familiar with the interface and the capabilities of the programs, making Adobe an unavoidable player in the market. How true this is is clearly shown by the percentage distribution of the graphics software market (based on Statista data for 2024):
- Adobe Photoshop: 41.74% (2022: 43.5%)
- Adobe InDesign: 26.13% (2022: 38.3%)
- Adobe Illustrator: 12.25% (2022: 14.7%)
- Canva: 10.26% (2022: 1.9%)
- SketchUp: 3.78%
- CorelDRAW: 1.34%
Adding up the software of Adobe Inc. (ADBE) we get 80!%, so the company has a complete monopoly in its own market. However, as I already mentioned in the description of the market segment, the graphic needs of everyday users are also met by platforms like Canva, which are much easier to use than PhotoShop or Illustrator. In fact, I could have mentioned any other Adobe Inc. (ADBE) software, each of them is worth 1-2 courses.
The problem is that the majority of digital media users are either sole proprietors or small and medium-sized companies, the real enterprise solutions are not included in this segment. This does not mean that large companies do not use them, they just have other kinds of problems that are not usually classified in this segment.
In the Digital Media segment, existing software can be used to reach B2B customers, through cross-selling. The logic behind this is that if graphic designers plan their campaigns with Adobe Inc. (ADBE) products anyway, why not visualize the data? By the way, there are “programming languages” for this, such as PowerBI, which is quite fashionable these days, where they present the numbers with graphs.
To summarize the above, Digital Experience is a division of Adobe Inc. (ADBE) focused on enterprise solutions, for which the main platform is Adobe Experience Cloud.
This includes various digital marketing and customer experience management tools, such as:
Adobe Experience Cloud:
- Adobe Experience Manager (AEM) – Content management system (CMS) and digital asset management (DAM).
- Adobe Analytics – Customer data analysis, real-time analytics.
- adobe target – Personalization and A/B testing.
- Adobe Customer Journey Analytics – Complex customer data analysis.
- Marketo Engage – B2B marketing automation.
- Magento Commerce (Adobe Commerce) – E-commerce platform.
- Workfront – Project management and collaboration tools.
- AI and machine learning – Adobe Sensei artificial intelligence helps with automation and intelligent data processing.
The reason I singled out this segment is that it is growing much faster than Digital Media, and Adobe does not have nearly as much of a competitive advantage in it as it does in legacy software, which still accounts for 70-75% of revenue. The major competitors in the digital marketing, e-commerce, and analytics space are:
- Content Management Systems (CMS) and Customer Experience Management (CXM)
- sitecore
- Acquia (Drupal)
- Optimizely (formerly Episerver)
- contentful
- Marketing automation and customer relationship management (CRM)
- Salesforce Marketing Cloud
- HubSpot
- Oracle Marketing Cloud
- SAP Customer Experience (CX)
- Analytics and customer data platforms (CDP)
- google analytics 360
- Amplitude
- Mixpanel
- Segment (Twilio CDP)
- E-commerce solutions
- Salesforce Commerce Cloud
- ShopifyPlus
- BigCommerce
- SAP Commerce Cloud
- Project management and corporate collaboration
- Asana
- Monday.com
- Jira (Atlassian)
- Trello
Here you can find quite serious companies as opponents, however, I must note that I use Trello or Jira on a daily basis, for example, and these are not software with such great customer retention power that users would not be able to switch to another competitor. Adobe has also made serious acquisitions in the Digital Experience segment - Magento, Marketo -, but they will certainly not buy competing companies due to their size. The large number of opponents above, however, for me, projects a picture of a fairly fragmented market in which significant competition is expected. It is also important that compared to the content creation market, this seems to be a segment twice as large as the one where Adobe Inc. (ADBE) has been playing with its legacy products so far.
Finally, it's worth watching the video related to Adobe Inc.'s (ADBE) AI-based content generation, but these aren't bad tools.
💰How does Adobe Inc. (ADBE) make money and what market advantages does it have?💰
In this section, we examine what exactly the company does, how it generates revenue, what products and services it has, how indispensable they are. Does it have any competitive advantage (economic moat), how defensible it is, and whether the trend is decreasing or increasing, and what is likely to happen in the long term.
Adobe Inc. (ADBE) generates its more than 20 billion USD in annual revenue from two main segments:
- Digital Media: 73.8%
- Creative Cloud software accounts for almost 50% of this (PS, InDesign, Illustrator, etc.)
- Document Cloud 10% (PDF, electronic signature, etc.)
- Digital Experience: 25% (Adobe Experience Platform, Adobe Analytics, Adobe Experience Manager, Marketo Engage, Adobe Commerce)
- Publishing and Advertising: 1.3%
In terms of geographical distribution, the company is relatively well diversified, but more than half of its revenues come from the US, so an economic slowdown there could be a significant headwind for the company. As you can see in the image below, the vast majority of the company's revenues are still generated by the Digital Media segment - which is of course not a bad thing - but according to market analysts, the digital customer experience segment is a significantly faster growing market segment. One thing is certain, however, revenues have been growing steadily for years - 5-year average CAGR of 13.41% - above the market average, which in the case of the S&P500 index is somewhere between 6-7%.
What may be noticeable at first glance is that the net income of the Publishing & Advertising sector has not been significant so far, and is even decreasing, and in fact, Adobe Inc. (ADBE) would not come to mind first if I wanted to advertise something, but rather YouTube, Facebook or an advertising agency.
As for market advantages, there is no question that the company is completely dominant in the digital media segment. However, how the other segments – Experience and Publishing&Advertising – have performed so far is roughly visible in the images below. It is worth noting that the Creative+Document segment in the figure is a subdivision of Digital Media, which I show both together and separately in the images.
The other is the Digital Experience segment, whose revenue has grown roughly 2022% year-on-year since 10. In contrast, the Document segment grew by 17% per year, while the Creative segment grew by 8% per year, which is still good compared to the S&P 500 average – 6-7% – but not so much compared to the advertising market – about 11% per year. I adjusted for 2025 data and looking at the last 5 quarters, this has slowed down significantly, to about 10%, but obviously the time horizon is different.
This is a clearly downward trend, which is usually not a good thing, but we will come back to this later. Let's turn to competitive advantage and its strength.
🏰Economic moat🏰
In this segment, I examined whether the company has any economic competitive advantage, which Warren Buffett referred to as an “economic moat,” which prevents competitors from besieging the company’s fortress, i.e. its business, and taking its market. In the case of Adobe Inc. (ADBE), these could be the following:
- 🫸Cost/scale advantage: Yes, the development cost of disruptive graphics programs is a one-time cost, and the costs do not increase proportionally with the sale of new licenses. I think there is an economic benefit from this, as demonstrated by the increase in Adobe Inc. (ADBE) operating margin in recent years. After switching to a SaaS model, the operating margin increased from roughly 10% to 36%. In addition, Adobe Inc. (ADBE) has a particularly strong pricing power, so with increasing volume, they have transformed their boxed product model into a very profitable business.
- 🫸Switching cost: strong, with 80+% of the Creative Cloud software market dominated, there is no substitute for some of the company's software. I can't name a single program that is used by as many people for creative work as Adobe Inc. (ADBE) software, BUT this is not the case in all of their segments.
- 🫸Network effect: Yes, because in the software business, new things can often go viral and the more people use something, the more popular it becomes.
- 🫸Intangible assets, know-how, trademark: Yes, on the one hand, companies cannot find programmers who are very skilled in developing graphics programs on every corner, and on the other hand, Adobe Inc. (ADBE) is quite a big collector when it comes to intellectual products, trademarks, and user data. The PDF standard is a very good example of this.
- 🫸Barriers to entry: not too high, as shown by the emergence of countless graphic platforms and web applications.
Overall, I think Adobe Inc. (ADBE) is a company with a wide moat in the graphics software segment, but a narrow moat when it comes to digital customer experience. Since the former segment accounts for 70+% of revenue, it's really about future growth, not its current position, which seems rock-solid. Another big question is how AI projects run by giant tech companies—which are much larger than Adobe in terms of size and financials—will affect imaging, but more on that in the risks section.
Adobe Inc. (ADBE) Metrics
In this section, I examined what metrics characterize the company, how it stands on the revenue side, what margins it operates with, whether it has debt, what the balance sheet shows. I look for items that are challenging - too high debt, high goodwill, etc. - what return on capital the company is working with, what its cost of capital is, how the revenue and cost sides are structured. I also examine trends, owner value creation, and how the company uses the cash it generates.
I already mentioned revenue, it is growing steadily, but at a slowing rate. I was looking for an answer to how big a problem this is, so I plotted both EPS and revenue per share over a 10-year period to see how the ratios have changed. You can read two things from the graph below:
- revenue per share growth over the last 10 years: 19.37% CAGR
- Earnings per share (EPS) growth over the last 10 years: 31.11% CAGR
As you can see, over a 10-year period, which includes the transition to SaaS, EPS has grown very nicely, faster than revenue, and cash generation has improved. Let's look at this for the last 8 quarters – 2 years:
The pace is slowing, but you can still see great values in the picture, I think many companies would accept this. Why is Adobe Inc. (ADBE) so cash generative? Below you can see a very cool chart from App Economy Insights, which shows how Adobe generates its revenue and what its cost structure is.
What immediately stood out was that the cost of revenues - the amount needed to maintain revenue - was 11%, which is a very low value, so this is a truly capital light business.
A large part of Gross Profit goes to marketing, sales, customer service, office rent, wages and benefits, etc., and rightly so, a significant item is R&D, which is 18%, since software needs to be developed.
☝️Since items such as Goodwill - Adobe is a significant acquirer and know-how collector - are shown on the other expenses line, which are usually written off as an Impairment charge, as an overpayment, I was very curious to see what numbers we find here. To make the situation clear, I would like to detail a few concepts.
🧠What is goodwill?🧠
💡Goodwill is an intangible asset on a company's balance sheet that arises when a company buys another company for more than its book value. Goodwill reflects factors such as brand name, customer relationships, intellectual property, and business reputation. In other words, anything that is difficult to capture. Goodwill is valued in comparison to other balance sheet and financial indicators, not on its own:
- As a proportion of total assets (Goodwill / Total Assets) -> 12788/30230=42.3%
- Low goodwill: If goodwill represents less than 10% of total assets.
- High goodwill: If goodwill constitutes 20-30% or more of total assets.
- Very high goodwill: If the goodwill ratio is above 40%, it may indicate that the company has made many acquisitions and has significant intangible assets.
- Relative to total equity (Goodwill / Shareholders' Equity) -> 12788/(30230-16125)=90.6%
- Low goodwill: If goodwill is less than 15-20% of equity.
- High goodwill: If goodwill amounts to 50% or more of equity, it may indicate a risk because impairment could affect the company's financial stability.
- Comparison with sales revenue (Goodwill / Revenue) -> 12788/21505=59.4%
- Low goodwill: If goodwill is less than 10% of annual sales.
- High goodwill: If goodwill reaches or exceeds 30-40% of sales, it may indicate that the company has purchased other companies at a significant price.
Based on the above, I couldn't find any metric that didn't have a high goodwill ratio. This doesn't mean that they will write these off (since Adobe is full of goodwill-type items), but a high intellectual property ratio is a warning sign for any company prone to acquisitions, as I will give an example of in the acquisitions section.
Let's look at the value creation side of the company. First, the margins are sky-high, 89% gross, around 26% net margin, and excluding the last 1 quarter - 13.4% - the FCF margin has also been between 30-40%, which is extremely high.
🧮What do ROIC and ROCE metrics show?🧮
ROIC – Return on Invested Capital – shows how efficiently the company uses its total invested capital to generate profit. Read more here.
- It shows the company's fundamental value creation capability.
- It filters out the impact of the financing structure.
- If ROIC exceeds the cost of capital (WACC), the company is creating value.
ROCE – Return on Capital Employed – shows how efficiently the company uses its long-term financing sources. Read more here.
- It measures the profitability of business activities.
- It does not take into account tax effects.
- A good basis for comparison between different industry players.
The same is true for value creation indicators, the company recycles the cash generated very efficiently, I don't see any problem with the 28.7% ROIC - Return on Invested Capital - and 38.3% ROCE values, especially since the company's weighted average cost of capital - WACC - is 13.9%, which is usually contrasted with ROIC.
WACC shows the average cost a company has to pay when raising capital (equity and debt). If ROIC > WACC (28.7%>13.9%), then the company is creating value, as is the case with Adobe. Adobe has exceptionally high value creation ratios, but in the case of margins, the company is not deploying the cash generated as before, see below.
🤵Adobe Inc. Ownership Value Creation🤵
On the owner value side, I usually look at what the company uses the free cash it generates. Basically, a company can do the following things with its cash:
- reinvests it into the business (e.g. R&D, I mentioned this above)
- reduced debt (6.56 billion USD as of 2025.03.31)
- pays dividends (Adobe does not pay dividends)
- buys back shares
- acquires other companies (in the form of cash, shares or debt)
〽️I mentioned R&D in passing, and Adobe doesn't pay dividends, so it's worth checking out the share buyback. The image below shows that the number of shares has been decreasing for years, as Adobe has a $25 billion share buyback program (the Figma deal would have diluted the shares, because they agreed to a cash+stock deal), which was announced in March 2024 (share purchase program) and will last until 2028 (this was a fairly logical decision in March 2024, when the share price fell below 500 USD and has remained below it ever since). In December 2024, there was still 25 billion USD left of the 17.6 billion budget.
In connection with the above, it occurred to me to check the cash on hand and the level of debt, which is as follows:
- cash and equivalents: ~6.7 billion USD
- debt: ~6.5 billion USD
So the company is in a net cash position and the number of shares is also decreasing. Although the share purchase cannot be called opportunistic, at least the buybacks that have been going on for many years do not indicate this. Since the remaining 20 billion USD from the Figma deal could not be allocated to other targets, they are reinvesting it in value-creating operations such as the buyback of shares that they believe are undervalued. This 1-2% buyback per quarter is quite a lot. The shareholder yield – the sum of dividends + buybacks + debt reduction – is +3.25%, which is extremely commendable.
💵Adobe Inc. (ADBE) Acquisitions💵
In this section, I examine how acquisitive the nature of the company is and what impact each acquisition had on the life of the company, if any.
Adobe is a pretty big acquirer, practically swallowing up its rivals for years, think of Macromedia's Flash format. Some of these are transformative and relatively expensive acquisitions. If you look at the list below, you can see that acquisitions are part of the nature of the company, not just ad-hoc bolt-on deals, but significant capital investments.
🤑2005 – MacroMedia Flash: 3.4 billion USD, a very old acquisition, I only put it here because it shows how Adobe built its current company structure. Today everyone knows MacroMedia's format as Adobe Flash - or not anymore, because it practically ceased to exist - just like no one remembers the original creators of DOS, everyone just calls it Microsoft-DOS. Today we don't use either flash or DOS, but the trend is still clear.
🤑2009 – Omniture: (Digital Experience): In September 2009, Adobe announced that it would acquire Omniture, a web analytics and online marketing solutions company, for $1.8 billion. The acquisition was intended to expand Adobe's portfolio and integrate Omniture's analytics tools with its own creative products, enabling customers to effectively measure and optimize the performance of their content. The acquisition closed in late October 2009, and Omniture's products were gradually integrated into Adobe's offering. Solutions developed by Omniture, such as Adobe Analytics, are now available as part of the Adobe Experience Cloud, which provides comprehensive digital marketing and analytics services to companies. The integration of Omniture has enabled Adobe to not only enable its customers to create high-quality content, but also to measure and optimize its effectiveness, thereby improving the effectiveness of digital marketing campaigns.
🤑2012 – Behance: Adobe acquired the Behance network, which allowed artists and designers to showcase their work.
🤑2013 – Neolane: Adobe acquired Neolane, a company that offered cross-channel campaign management solutions.
🤑2018 – Magento (Digital Experience): Adobe announced its acquisition of Magento in May 2018 for $1.68 billion. Magento is an open-source e-commerce platform that was launched in 2008 and has since become a global leader in online commerce. Following the closing of the transaction, Magento was integrated into Adobe’s product portfolio and is now known as Adobe Commerce. This platform enables businesses to deliver customized, scalable, and omnichannel e-commerce experiences to their customers, across both B2B and B2C segments. Adobe Commerce integrates with other Adobe services, such as the Adobe Experience Cloud, to provide a unified and powerful digital marketing and sales ecosystem.
🤑2018 – Marketo (Digital Experience): Adobe announced its acquisition of Marketo in September 2018 for $4.75 billion. Marketo is a leading marketing automation platform that helps companies manage and automate B2B and B2C marketing campaigns. The acquisition was aimed at expanding Adobe’s digital marketing portfolio, particularly in the B2B segment, and strengthening its competitiveness against market players such as Salesforce. After the acquisition closed, Marketo was integrated into Adobe’s Experience Cloud platform and is now known as Adobe Marketo Engage. This platform enables marketers to deliver personalized customer experiences, automate campaigns, and measure their effectiveness across multiple channels.
🤑2020 – Workfront: Adobe announced the acquisition of Workfront in November 2020 for $1.5 billion. The transaction closed in December 2020. Workfront is a cloud-based enterprise work management solution that helps teams and organizations effectively plan, track, and manage workflows. The acquisition was intended to expand Adobe’s digital experience platform with an integrated work management tool, enabling its customers to manage their projects and workflows from start to finish.
🤑2021 – Frame.io: Adobe announced its acquisition of Frame.io in August 2021 for $1.275 billion. Frame.io is a leading video collaboration platform that enables creative professionals to review, approve, and share media efficiently in real time. The acquisition was aimed at integrating Frame.io’s capabilities into Adobe’s own Creative Cloud ecosystem, specifically Premiere Pro and After Effects. As a result, users will be able to access Frame.io features directly from these applications, such as real-time feedback management, fast file sharing, and “Camera to Cloud” technology, which allows footage to be instantly uploaded to the cloud right from the set.
🛑The Adobe Figma acquisition and its failure🛑
🖍️2022 – Figma: The much-hyped acquisition of Figma – a cloud-based design platform for graphic designers – was announced by Adobe in September 2022, for a value of USD 20 billion. The matter was very interesting, among other things, because Figma's revenue was growing rapidly, in the same sector where Adobe also operates:
- 2022 – $425 million
- 2023 – $615 million
- 2024 – around 700 million USD (this is far from Adobe's 21 billion USD revenue)
🫰From any perspective, this looked like a very expensive acquisition – P/S=50 – but many called it a forced acquisition, as Figma’s growth posed a threat to Adobe’s expansion. However, the transaction raised significant competition concerns from regulators in the European Union and the United Kingdom. These authorities feared that the merger of Adobe and Figma could reduce competition in the design software market, which could negatively affect innovation and consumer choice.
🛑Due to mounting regulatory pressure and uncertain prospects for approval, Adobe and Figma jointly decided to terminate the acquisition agreement in December 2023. As a result, Adobe was required to pay Figma a $1 billion termination fee, effectively a net cash burn (and obviously a write-off on the books, but it's not a significant item given Adobe's size).
To sum up, none of the deals were particularly expensive – except for the Marketo deal – they are not transformative deals – except for the Figma deal, which would have been – but they are a good complement to the Creative Cloud and Experience Cloud packages. Adobe chose these acquisitions quite well, so I don't think their money management skills are bad.
🤵Adobe Inc. (ADBE) Management🤵
In this section, I examine who runs the company and how. What is the bonus system, how much risk – skin in the game – do the managers take on while running the company? Is there a family connection, or perhaps a special “heritage” factor?
Important leaders at the helm of the company:
- Shantanu Narayen: Chairman and CEO. He has held the position of CEO since December 2007 and has played a significant role in transforming Adobe, including transforming its creative and digital document software into a cloud-based service. He has been CEO for 17 years, and his annual compensation is $44.9 million, which is quite high. He owns $170 million in stock in the company (0.088%), which is about 3.5 years of salary. What bothers me more is that he sold shares in two installments, totaling nearly $27 million, at $545.82 and $525.7 during the year 2024.
- Daniel Durn: Executive Vice President and CFO. Responsible for the company's financial strategy and operations. Has a stock package of 12.7 million USD (0.0066%). Compensation: 14.3 million USD. Sold shares in 2024, at a price of 515.9 USD, worth 3.5 million USD. Has been with the company for 3 years.
- David Wadhwani: President, Digital Media. He leads the development and go-to-market strategy for creative software and services.Compensation: $16.73 million, has a very small stock package of $9.2 million (0.0047%). He has been with the company for 4 years.
- Anil Chakravarthy: President, Digital Experience. Responsible for Adobe's digital experience products and services. Compensation: $15.1 million in stock, worth $18.6 million (0.0096%). Has been with the company for 7 years.
- Gloria Chen: Chief People Officer and Executive Vice President. Leads global HR strategy and culture development. Has a stock package of USD 16.6 million and has been with the company for 5 years.
- Dana Rao: Deputy Managing Director. Responsible for legal affairs and corporate governance. Sold shares in 2024 at $525.51, valued at $3.5 million.
- Jilian Forus: Senior Vice President, we don't know his compensation, he has practically zero exposure (1.2 million USD), sold in 2024 for 450 thousand USD, at prices of 435 and 485 USD.
There are some problems with the above, there is not really skin in the game - except for the CEO -, meaning that management is NOT that interested in creating value for the owners, because they do not own a sufficient share position in the company either.
What is also telling is that the CEO has the biggest position, but if I look at it compared to his compensation, it's not nearly as huge, he would earn his package in about 3.5 years. The CFO doesn't even have a year's salary at Adobe, nor does the President of Digital Media.
There were also quite a few insider sells, above 500 USD, which to me shows that they “think” the company is not worth that much. If this were 1-2 cases, I would say that it is plausible that they needed the money – there could be countless reasons for the sale, not just getting rid of the company – but here we are talking about a value of many millions of USD, which is compared to relatively few purchases (but it was at 392 USD). From this I conclude that the current price is already undervalued according to management, while 520 is overvalued. This somewhat coincides with what was found for the average fair value.
However, in my opinion, the above is very far from a well-motivated management, from appropriate management remuneration systems – e.g. CMG, CSU and its spin-offs – and especially from family companies. What I really don’t like is the value of stock-based compensation. In 2024, it was 1.8 billion USD!, which is extremely high. I couldn’t find any more information about how exactly this is divided among the management members, but it is terribly high, compared to the fact that the net profit was 5.6 billion USD. What is much more annoying is that the level of benefits increased by a CAGR of 19.2%, which roughly coincides with the increase in revenue (it may be tied to this metric).
Before anyone misunderstands, this is not bad management at all, every company would be happy with this, so you can't draw any far-reaching conclusions from this alone, without listening to what they say during the quarterly reports, what their attitude is, and so on.
💡It should also be acknowledged that CEO Shantanu Narayen led the entire SaaS transition, meaning that Adobe is primarily where it is today because of him, so he cannot be accused of not having led the company excellently in recent years.
Regardless, I think the stock compensation is unrealistically high, and the executives are grossly overpaid. Another interesting thing is that the company has underperformed expert forecasts only once in the past 16 years, which suggests two things: their estimates are quite conservative, and very rightly so, and on the other hand, these numbers are relatively reliable.
- "Quarterly profile, we view it as less important. Really want to focus on revenue and EPS, focus on the annual book of business growth. We think that's the most important way to look at the business. It's also how we, as the management team, run the business." – Dan Durn, CFO, Q4 2024
- When asked about the increased competition on the AI front and if that has an impact on limiting monetization, Adobe's CEO Shantanu Narayen said:
- "I think the differentiation is the combination of the model and the technology. And in video, I think we will find additional ways to monetize it. So I'm not sure who specifically you're referring to as it relates to competition in this space, but from our perspective, it's just unique. I mean, if you look at the acceleration of what we've seen of generations in Photoshop, Illustrator, Lightroom, it's clear that we're actually extending the value rather than having other people catch up.”
Management reactions are positive, their opinions broadly align with the interests of shareholders.
🆚Competitors: Adobe Inc. (ADBE) opponents🆚
In this section, I examine who the competitors of the analyzed companies are, what is their market position, whether they are in a subordinate, secondary or superior role. What is their market share and what is their specialty? Are they losing or gaining market share to their competitors?
What I find telling is that when I thought about who I could name as a full-spectrum competitor in the creative software market that produces products like Adobe, none came to mind. So it occurred to me, what if I looked at what Morningstar had to say about it:
The image above shows that as of March 2025, Morningstar can only name software companies, which is interesting because these are not really direct competitors to Adobe in the legacy image editing segment, but they are more likely to compete in the Digital Experience market. I used ChatGPT to retrieve all the competing software that could be Creative Cloud's opponents (there are obviously others, but these are also good as an approximation):
- Adobe Photoshop – Competitors: Affinity Photo (Serif), Corel PaintShop Pro (Alludo), GIMP (open source)
- Adobe Illustrator – Competitors: Affinity Designer (Serif), CorelDRAW (Alludo), Inkscape (open source)
- Adobe InDesign – Competitors: Affinity Publisher (Serif), QuarkXPress (Quark Software)
- Adobe Premiere Pro – Competitors: DaVinci Resolve (Blackmagic Design), Final Cut Pro (Apple ), VEGAS Pro (MAGIX)
- Adobe After Effects – Competitors: Nuke (Foundry), HitFilm (FXhome)
- Adobe Lightroom – Competitors: Capture One (Phase One), DxO PhotoLab (DxO Labs), Luminar (Skylum)
- Adobe Acrobat – Competitors: Foxit PDF Editor (Foxit Software), Nitro PDF (Nitro Software), PDF-XChange Editor (Tracker Software)
From the above, Apple (AAPL) and Magix AG (MGS) are listed companies, while Nitro Software (ASX:NTO) was acquired by Potentia Capital and delisted in March 2023. I don't think I need to explain why Apple is not really an opponent of Adobe, and Magix AG is so small that I couldn't find its market capitalization. So, Adobe has no significant competitors, which may be because it has acquired everyone, as can be seen in the "Acquisitions" section. From here on, the wide moat that the company has earned from Morningstar is indisputable. At least in the Digital Media segment, because Digital Experience is a completely different matter.
🖍️It is worth mentioning the e-signature market, where the company DocuSign has become a household name, and this affects the Adobe Document Cloud segment, even if the PDF format and Adobe Reader are unavoidable names in the market.
And here I would like to go back to the Figma deal, which although failed, the company has since roughly doubled its revenues. And this is the segment – Digital Experience – where Adobe could be in trouble, because its situation here is not nearly as easy as in the field of image editing applications. In addition to Figma, there is, for example, SalesForce, which is strong in marketing automation platforms.
The image below shows what percentage of respondents used each tool in a given period when it comes to collaborative design, where teams work together. There is a great article about technological tools at Lenny's Newsletter on the substack channel, it's worth reading.
90!% of respondents and 97% of graphic designers used Figma, and a significant 17% used Canva.
What you should know about Adobe XD is that the manufacturer stopped development of the platform - it is in so-called maintenance mode - because they expected the Figma acquisition to happen, which failed at the end of 2023. This is a very good example of how Adobe simply does not sell a competitive product in certain market segments.
Since Adobe is not finding acquisition targets – it hasn't had one since 2021, it is in a net cash position, it is buying back shares – to strengthen its position, I currently see them trying to solve these things in-house, for example with AI development. The reason for this is that although artificial intelligence, in my experience, is quite good at associative imaging, it still has its shortcomings, but given the pace of development, it may be able to replace the functions of graphics programs in the near future, or at least supplement them. Of course, on a prompt basis, this will never be as smooth as moving a slider – see Adobe Firefly -, but investors apparently expect the company to develop all kinds of AI assistants for its software, which is also in progress. I have seen a similar solution at Canva, for example, but these are all in their infancy, only the future can tell where the industry will go next.
Regarding Canva – low end design – a few thoughts: I found two data sources, one older, from 2022, which puts Canva’s market share at 1.9%, the other is from mid-2024 – Statista -, where it’s already 10.26!%, which is a 5x increase in 2 years. This is very fast growth and I’m using Canva more and more, and many people in my circle of acquaintances are switching to it. There’s a pretty good report on CNBC about this (CNBC report), which reveals that Canva has been profitable for 7 years – it was founded in 2012 –, is valued at a whopping $32 billion –, operates in 190 countries, and has 225 million users, 24 million of whom pay for the service.
However, it is not a publicly traded company, which also means that it has not needed to raise capital so far, which is almost unbelievable. Is it a threat to Adobe? Probably yes, it is much easier to use, it is cheap, it has conquered markets like India, so it is very popular. And you can only gain such a market share at the expense of the market leader Adobe. However, Canva feels like a bit of a “low end” product compared to Adobe software, so it may be more of a complement to it than a replacement.
⚡What are the risks of Adobe Inc. (ADBE)?⚡
In this section, I examine all the risks that could affect the company's long-term future. Currency, regulatory, market disruption, and so on.
I listed a total of three risks, which is relatively few, but they are worth discussing in more detail.
- 🤔Regulatory risk: It's rare for me to write about regulatory risks in a software company, except when the current mega-corporation is about to be broken up, e.g. Google. However, the Figma deal showed how regulators can block a merger between two companies, as US and European competition authorities are increasingly scrutinizing the deals of tech giants, which could make future acquisitions more difficult. I think it's no coincidence that Adobe hasn't had one since 2021, so the company had to find other ways to use its cash, which is why it's now buying back shares. Since Adobe has grown through acquisitions, it's a big question what happens next, but personally I'd be happy if they reinvested the remaining free cash back into the business.
- 🤔Excessive competition and market loss: If we only look at the legacy part of Adobe's market, there is no question that it is a dominant force in the field of graphic design software. However, the trend seems to be changing, more and more people are using either free solutions or design platforms that integrate not only graphic design, but also, for example, graphics for social media management, website design or even corporate processes. Adobe's position in these areas is not nearly as strong and they also have to fight with competitors such as Salesforce, Oracle or Microsoft in the Digital Experience segment. These are not small companies at all, so the increase in the intensity of competition is not a far-fetched scenario.
- 🤔The disruptive risk of AI: There are few industries where the role of AI has grown as much as imaging, just think of Open AI's DALL-E, Midjourney or Runway ML. Today, you can easily ask MidJourney for a dragon with a bell-shaped clown's hat on its head, and it will generate it for you without any problems. Of course, very good feature-ready solutions do not yet exist, so it is not possible to have AI perform PhotoShop-level tasks, but no one knows how far we are from that. It is quite conceivable that, relying on the vast amount of data from large language models, there will be strong AI-supported graphics software sooner or later, but it is not certain that Adobe will present them to the market. Of course, Adobe is also developing such solutions, which you can read about below.
Adobe sensei
Adobe Sensei is Adobe's AI platform that integrates artificial intelligence and machine learning across the company's products. It aims to enhance users' creativity and productivity by providing intelligent features and automated processes. With Sensei, users can create compelling content faster and easier.
adobe firefly
Adobe Firefly is the latest advancement in generative AI that allows users to create images and videos based on simple text descriptions. Firefly is integrated into Creative Cloud apps like Photoshop and Premiere Pro, allowing users to access generative AI features directly from within these tools, making creative workflows faster and more intuitive.
Generative AI in video editing
Adobe is also applying AI to video editing. New features in Premiere Pro, such as Generative Extend, allow users to automatically extend the length of their videos with generated content, making it easier to create transitions and cuts. This development significantly improves the efficiency and flexibility of the editing process.
Before anyone panics, programs like Photoshop, Illustrator, and Premiere Pro already have AI features and the repertoire is constantly expanding, so market disruption has not yet occurred, but there are question marks over the company's long-term future.
I made a kind of self-check list that confirms my thesis about the company:
As you can see, the six points are not being met flawlessly. In terms of economic advantage, I think the company is still doing very well, but digital content production is something that the AI revolution could be dangerous for.
👛Adobe Inc. (ADBE) Valuation👛
In this section, I will examine the company's current valuation compared to historical values and consensus fair values.
Rating metrics
In the two rows below you can see valuation metrics. The first row shows the current valuation, the second row shows the historical valuation. Although I don't think these metrics are particularly good - they hide a lot - they can be used as a basis for comparison.
- Share price (2025-04-01) 383.2 USD; P/E: 25.24; EV/EBITDA: 17.65; P/FCF: 18.53 (Based on Finchat.io)
- Historical median valuation (10-year average): P/E: 50.7; EV/EBITDA: 34.81; P/FCF: 34.82 (Based on Gurufocus)
Why don't you see a DCF model in this segment? Because each input data produces a huge variance in the output, and most of the data is an estimated value. Therefore, the valuation will never actually be a single exact number, but rather a range can be defined where the current valuation falls.
You should apply a margin of safety to this price range, according to your risk appetite.
So don't expect an exact price, no one can say this for a stock. However, there are fair value prediction services, almost every major stock screening service can do this, I have aggregated these below. However, if you want a good stock support service, you should subscribe to The Falcon Method-, entry prices are given for the stocks analyzed there.
Rating
- Peter Lynch Median P/E: $797
- Morningstar: $590 (4 stars)
- Gurufocus: $576
- AlphaSpread, base case: $470 (5% undervaluation compared to base case)
- SimplyWallst: $402
- Substack: $675
- Valuinvesting.io: $305.5
- Wall Street estimates: 400-700 USD=550 USD (Alphasrpead, average of the two extreme values)
Average price (based on 8 ratings): 546 USD (30% undervalued compared to average, at current price of $383.2)
How to interpret the numbers? The above "margin of safety" rule should be applied according to your convictions, so if you really believe in the company, you can buy it at fair value, but if you proceed in 10% steps (whose conviction is strong), the math would look like this:
- 10% margin of safety: 534*0,9= ~481 USD
- 20% margin of safety: 534*0,8= ~427 USD
- 30% margin of safety: 534*0,7= ~374 USD (this is roughly where we are now)
- 40% margin of safety: 534*0,6= ~320 USD
- 50% margin of safety: 534*0,5= ~267 USD
Of course, the list could go on and on, but the point is that the right purchase price for you will be determined by the level of your conviction.
Based on the above, the stock is already quite cheap, and there is a reason for this: slowing growth and their AI projects did not come in as well as the market had hoped, but I think this is mostly a sentiment element. The disruptive AI environment may indeed be a real risk, this is what investors are currently pricing in.
🌗Significant news and the last quarter🌗
In this section, I will examine what happened in the last quarter, whether there were any significant news/events. If the company reports semi-annually, we examined this period.
Adobe released its Q2025 report in March 1, which seemed to be in order, with the company continuing its previous growth pace. As with all Q reports recently, the main topic here was AI and Adobe's AI tools. Management confirmed its forecasts for 2025, which I personally don't attach much importance to. I don't like short-term forecasts, because the company should focus on its long-term operations and innovation, these numbers are just "expectations" imposed by the market, they don't really mean anything.
????Adobe 2025 Q1 Report????
- Record revenue: $5.71 billion, representing a 10% year-on-year increase (11% at constant exchange rates).
- Diluted EPS: GAAP $4.14, non-GAAP $5.08.
- GAAP Operating Result: $2.16 billion, non-GAAP $2.72 billion.
- GAAP Net Income: $1.81 billion, non-GAAP $2.22 billion.
- Operating Cash Flow: $2.48 billion.
- Service Performance Obligations (RPO): $19.69 billion, current RPO 67%.
- Share buyback: Approximately 7 million shares were repurchased during the quarter.
RPO, in Adobe's case, stands for Remaining Performance Obligations, which refers to the company's contractual obligations that it has yet to fulfill. This shows how much committed revenue the company has yet to realize because it must provide these services or products in the future. For more information, see the "Interesting" section.
2025 Q1 business segment highlightsi
- Subscription revenue: $1.30 billion (11% year-over-year growth).
Digital Media segment (this includes legacy software and document-related items):
- Revenue: $4.23 billion (11% year-over-year growth).
- Annual recurring revenue (ARR): $17.63 billion (12.6% year-over-year growth).
Digital Experience segment:
- Revenue: $1.41 billion (10% year-over-year growth).
- Subscription revenue: $1.30 billion (11% year-over-year growth).
Additional Customer Group Related Data
Adobe now breaks down subscription revenue by two customer groups:
Business users:
- Revenue: $1.53 billion (15% year-over-year growth).
Creative and marketing professionals:
- Revenue: $3.92 billion (10% year-over-year growth).
A few thoughts on the above breakdown. It is logical that Adobe breaks down the two segments in its reports, since one is B2C and the other is B2B, and somewhere Digital Media and Digital Experience are also separated into these. This does not mean that small and medium-sized businesses or multinational companies would not buy, for example, Photoshop licenses - they often use the word seat to indicate how many employees have such licenses -, it simply means that the B2B sphere has different processes than a freelance graphic designer.
2025 Q2 Goals:
- Total revenue: USD 5.77–5.82 billion.
- Digital Media segment revenue: USD 4.27–4.30 billion.
- Digital Experience segment revenue: USD 1.43–1.45 billion.
- EPS: GAAP: $3.80-$3.85, non-GAAP: $4.95-$5.00.
FY 2025 Goals:
- EPS: GAAP: $15.80-$16.10, non-GAAP: $20.20-$20.50.
- Total revenue: USD 23.30–23.55 billion.
- Digital Media segment revenue: USD 17.25–17.40 billion.
- Digital Experience segment revenue: USD 5.80–5.90 billion.
💡These figures are only approximate values, they should never be taken seriously. A quality company does not create value in 1-2 quarters, but over many years. They are interesting, but you should not rely on forecasts at any level. The reason for this is that companies tend to make deliberately conservative forecasts in order to be able to exceed analysts' expectations. The Yahoo Earnings Calendar You can check these out in our service, and lo and behold, Adobe has always exceeded EPS expectations since 2020 (i.e. 20 quarters).
Next quarterly report: 2025.06.12
Other interesting facts about Adobe Inc. (ADBE)
Everything that was left out of the previous ones, or if there is any special KPI - key performance indicator - or concept that needs to be explained, it is also included here.
Reaction to Figma deal from one of the most prominent fund managers Terry Smith: Fundsmith fund manager, sold his Adobe shares in April 2023, less than a year after buying them. The decision was driven by Adobe's planned $20 billion acquisition of Figma, which raised concerns in Smith about the value and necessity of the transaction. Although Adobe posted strong financial results that year, Smith decided to exit the position and redeploy the resulting capital into a new investment. Worth reading about this Terry Smith letter to investors.
KPI - Key Performance Indicator
ARR, annual recurring revenue: annual revenue that measures the profitability of individual business lines. The higher the rate of recurring revenue and the faster it grows, the better the prospects for Adobe. There is minimal fluctuation, but over a 10-year period you can see a downward trend (but I wouldn't call it terrible).
RPO, remaining performance obligations, are the company's unfulfilled obligations, which are therefore not yet included in revenue. In Adobe's case, the only significance is that the blue bars show the aforementioned ARR, which is getting higher and higher every quarter. As is the RPO, which moves roughly in line with ARR, meaning it's not that Adobe is not fulfilling its commitments and therefore has stuck revenues, or the opposite, that the overfulfillment is already included in revenue in the present, but is expected to fall in the future.
Adobe Inc. (ADBE) Summary
Summary of the analysis, drawing lessons.
The analysis has two conclusions for me: Adobe looks undervalued, but the market is pricing in slowing growth, and it is difficult to predict the company's future due to the advancement of AI. It is not far-fetched to think that their services can be replaced by artificial intelligence. This does not mean that Adobe Inc. (ADBE) will be in trouble tomorrow, but I do not see the company's future being assured in the 10-20 year period if the artificial intelligence developments of Microsoft, Meta, and Google mature or if Adobe has to dominate the Digital Experience market segment against companies such as Salesforce or Oracle. Important! These are speculations, there is nothing to indicate this yet.
Adobe has already started AI integration, and there is no question that they know best how to produce image editing software, so why shouldn't they be able to integrate AI tools better than their competitors? It is also conceivable that artificial intelligence will become a general tool like the internet: everyone benefits from it uniformly, it speeds up processes, but there will be no clear "toll collector" for the technology.
For me, the question is also whether the announced $25 billion share buyback program is the most efficient use of capital. It is better than paying dividends, but they may be doing it out of necessity because they have not found a suitable acquisition target. If the price falls for a long time, the buyback may be even larger, since more shares can be bought back at a depressed valuation, i.e. it is a more efficient means of value creation.
On the other hand, I would like to add two big positives: the 20 billion Figma deal, which would have been a terribly overpriced deal, did not materialize, which created the opportunity for the 25 billion USD share buyback. I think this is a MUCH better form of capital allocation, but it still leaves another opponent in the market. In other words, the company is currently using its free cash effectively in the absence of alternatives, but I would not mind if they also accelerated internal developments. The other is the valuation: the stock is becoming increasingly attractive, since there are no major problems on the fundamental side, the price drop seems more like a sentiment element than a real deterioration in performance.
Frequently Asked Questions (FAQ)
Which broker should I choose to buy shares?
There are several aspects to consider when choosing a broker - we will write a complete article about this - but I would like to highlight a few that are worth considering:
- size, reliability: The bigger a broker, the safer it is. Those with a banking background – Erste, K&H, Charles Schwab, etc. – are even better, and well-known brokers are typically more reliable.
- expenditures: Brokers operate with various costs, such as the account management fee, the portfolio fee - which is the worst cost -, the purchase/sale fee and the currency exchange cost (if USD is not deposited in the brokerage account)
- Availability of instruments: It doesn't matter which broker has which market available, or whether they add the given instrument upon request and how quickly.
- account type: cash or margin account, the latter can only be used for options. For Hungarian tax residents, having a TBSZ account is important, but citizens of other countries also have special options – such as the American 401K retirement savings account – which are either supported by the broker or not.
- surface: is one of the most underrated aspects, and it can be a real pain. Anyone who had an account with Random Capital, a now-defunct Hungarian broker, knows what it's like to work on a platform left over from the 90s. Erste's system is lousy slow, Interactive Brokers requires a flight test, and LightYear believes in simple but modern solutions.
Based on the above, I recommend the Interactive Brokers account because:
- the world's largest broker with a strong background
- a few million instruments are available on it, and shares listed on multiple markets – e.g. both the original and the ADR – of a single share are often available
- az Interactive Brokers a discount broker, they have the lowest prices on the market
- you can link your Wise account to them, from which you can quickly transfer money
- Morningstar's analyses are available for free under the fundamental explorer (good for analysis)
- EVA framework data is available under fundamental explorer (useful for analysis)
- they have both cash and margin accounts, Hungarian citizens can open a TBSZ
- you can use three types of interfaces: there is a web and PC client and a phone application
What data sources did you use to analyze stocks?
For quantitative analysis, we primarily use various stock screening sites, and for qualitative analysis, we use company reports and other analyses, such as the Substack channel, podcasts - Business Breakdowns - and similar sources.
What matters: value or quality?
The answer is both, but quality is more important. It is much better to buy a very high-quality company at a fair price than to buy shares of a cheap but poor-quality company.
What is the best time frame to buy shares?
The minimum is 5 years, but you should consider the time horizon from 10 years to infinity. Our approach is typical "buy and hold", the emphasis is on selection, then we try to hold the shares for as long as possible, which requires conviction. We rarely sell, mainly if we feel that the thesis we set up has been broken or if we have made a mistake.
Which is better: individual stocks or ETFs?
There is no truth to this question. It is very easy to track the market with an S&P 500 ETF, and it is worth doing for beginners, because it can be done with a little knowledge and practice. Analyzing individual stocks requires 30-50 hours per company, so we do not recommend it to those who do not like it.
Do you hold the shares in a TBSZ account?
Yes. As a Hungarian citizen, the tax advantage over a traditional cash-based account is so great that it is worth opening a new TBSZ account every year, and then the withdrawal of money is also solved (but if you do not want to withdraw anything from it, you can extend these)
Why don't you specify a specific purchase price for the shares in your analyses?
We do not set purchase prices for several reasons: firstly, because it is impossible to calculate the exact value of a company. Secondly, because we cannot give investment advice, these analyses are only made to support the decisions of others. That is why we use fair value estimates from other services, as well as a certain margin of safety. Ultimately, your conviction will decide how much a company is worth to you.
Which stock price will rise or fall?
Nobody knows, because there is no magic bullet that can tell. It can be based on mathematical probabilities. The prices of high-quality companies that have growing sales, are able to reinvest the cash generated into the business, and have high intrinsic value creation tend to rise in the long term. But in the short term – a few years – the market and the price can move anywhere.
Legal and liability statement (aka. disclaimer): My articles contain personal opinions and are written solely for my own entertainment and that of my readers. iO ChartsThe articles appearing on this website do NOT in any way exhaust the scope of investment advice. I have never intended, do not intend, and am unlikely to provide such advice in the future. The information provided here is for informational purposes only and should NOT be construed as an offer. The expression of opinion is NOT a guarantee to buy or sell financial instruments. You are SOLELY responsible for the decisions you make, and no one else, including me, assumes the risk.
