This 'Better' Software Business Is Flaunting Its Data Advantage Today

This season's holiday shopping data is coming from an unlikely source...

Cyber Monday recently made the wrong kind of history. Sales declined for the first time ever.

Thanks to some high-quality data, though, we know that this is nothing worth panicking about. Overall, holiday sales continue the trend of breaking prior records. The fact that only Black Friday and Cyber Monday are down – while overall sales for the season are expected to rise – speaks to the supply-chain constraints that companies are facing.

Those issues will get resolved eventually. The numbers show us that the U.S. consumer is as strong as ever.

But importantly, this powerful data isn't coming from big-name retailers, giants like Amazon or Alphabet's Google, or consulting company McKinsey...

It's coming from Adobe (ADBE).

That's right. The company that we all know for its Reader and Photoshop software is now the go-to source for holiday retail shopping data.

Aside from its popular PDF and photo-editing software, Adobe sells Creative Cloud, which offers a suite of high-end products for professional creators. This is what most people have come to know and love from the Silicon Valley titan.

But Adobe has been quietly expanding from its niche...

Adobe also offers services for companies hoping to understand their customers better. Among these "digital experience" services is an e-commerce analytics data model... And many believe it's even better than Google's popular "enhanced e-commerce" service.

Adobe has been publishing data about this year's holiday season as part of an awareness and marketing campaign, showing off its analytics team's capabilities.

The digital experience segment was a natural next step for the company. Adobe has been transforming its own business over the last decade. Specifically, it adopted a Software as a Service (SaaS) business model... which has made it easier than ever to onboard new customers and sell them new kinds of products.

Like Canadian e-commerce giant Shopify (SHOP), Adobe is among the early adopters of the SaaS revolution...

Along with Salesforce (CRM) and Intuit (INTU), Adobe proved to the world that the SaaS model is better and more profitable than selling expensive, one-time software licenses. Instead, SaaS companies can bring in recurring revenues by selling subscriptions.

Salesforce and Intuit proved that the SaaS model could work for businesses. Adobe chose to pioneer it for consumers, especially with its Creative Cloud.

But the business-to-business opportunity was still waiting in the wings. It was an opportunity Adobe just couldn't ignore. And all it needed to do was adopt its existing SaaS infrastructure to focus more on data and analytics for corporate clients.

That was long before SaaS took over the tech markets. It was viewed as a competitive advantage, not a necessity. Hence, Adobe gained some first-mover advantages.

The company has tripled its digital experience business over the past 10 years. Its legacy business has also tripled since 2015.

The software world has since followed in Adobe's footsteps... Non-SaaS options are largely considered outdated. With the popularization of the cloud, and few barriers to entry, software companies now have little excuse but to offer a SaaS option to their customers.

Adobe's business transformation led its stock to rise from around $27 in 2011 to around $575 today, a gain of more than 2,000%... enough to turn every $5,000 into more than $100,000.

But you wouldn't know it by looking at the as-reported metrics.

In 2011, Adobe had 9% return on assets ("ROA"). By 2020, it was just 12%. The as-reported numbers would suggest that the shift to SaaS has barely impacted Adobe's business.

Take a look at the as-reported ROA since Adobe embarked on its SaaS journey...

This is exactly why our team at Altimetry uses Uniform Accounting... to smooth out the distortions of traditional accounting methods.

With Uniform Accounting, we can see why SaaS has led to massive gains for investors...

Adobe has made dozens of acquisitions over the past decade. That has caused its as-reported balance sheet to balloon with goodwill, keeping ROA low.

In reality, these acquisitions have been transformational, helping Adobe become a dominant leader in the cutting-edge world of tech. Take a look at Adobe's real numbers...

SaaS opened a world of possibilities for Adobe. Customer acquisition became easier than ever... subscription revenues are steady and predictable... and as Adobe's customer base grew and profitability improved, longtime investors have watched as the stock has turned into a 20-bagger.

The past few years have shown that the right SaaS businesses can benefit investors immensely. Adobe is just one moonshot in this broader trend.


Joel Litman

Editor's note: Adobe is a more than $270 billion company... So the reality is that by now, public investors have likely missed most of its biggest move higher. That's why at Altimetry, Joel also searches for the undiscovered gems – "microcap" companies that go public with less than $1 billion in value that have the potential to generate huge returns. In a brand-new presentation, Joel and his team share all the details... Learn more here.

Further Reading

This company's 2020 performance looks mediocre under traditional accounting metrics. But a closer look will show that it actually had a banner year... Learn more here: Here's the Winner From the 'Great Reshuffling.'

One of the biggest winners throughout the pandemic made excellent returns last year. But as-reported accounting distortions undersold just how well it had done – and how much it was really worth... Read more here: The Software Giant Behind the 'King of Calendars' Is Still a Winner.

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This company's software reduces stress from e-mails and makes employees more productive. And it has huge growth potential thanks to its business model...

Market Notes


Today's company is helping in the fight against COVID-19...

As the pandemic lingers on, the world has gained many more tools to help curb the spread of the coronavirus. One of the most important is the ability to test for positive cases. Today's company is providing those tests...

Quest Diagnostics (DGX) is a $21 billion medical diagnostics company. This "World Dominator" of lab results serves one in three American adults and half the physicians and hospitals in the U.S... And right now, it's helping to diagnose COVID patients. In the latest quarter, revenues of $2.77 billion were roughly flat year over year, while diluted earnings per share fell 2.8%. However, Quest also raised its full-year outlook. The company now expects both higher-than-anticipated COVID testing and continued strength in its base-business performance.

DGX shares are soaring higher... up 44% over the past year, including dividends. They just hit a fresh all-time high. As Quest helps to fight the pandemic – and as its normal testing business reflects that recovery – this trend should continue...