Adobe & Goldman Sachs – A Match Made In Heaven?!!


It’s Friday afternoon, and to close out my week-long rant against the proposed Adobe Creative Cloud, just in case there are any of you out there who still don’t believe that what Adobe is doing amounts to a straight-up money grab, I offer you this to chew on…

Quoted from a Goldman Sachs research report on the subject:

With the announced update of Adobe’s flagship content authoring tools Photoshop, Illustrator and InDesign the company rebranded them Creative Cloud instead of Creative Suite and stated that the new editions would only be available on a subscription basis. Further, the company stated that going forward all new features for these apps would also only be available with the subscription offering. Adobe will continue to sell and support CS6. While our conversations with Max attendees indicate that most found the timing of the move surprising, we view it as likely accelerating adoption of Adobe’s subscription offering…….We believe the lack of VIABLE ALTERNATIVES to the Creative Cloud apps along with the productivity enhancements in the new editions will drive the majority of CS users that are ready to upgrade to migrate to Creative Cloud despite what will likely be a vocal but small backlash.

That was followed with this little nugget:

In a report published Thursday, Goldman Sachs analyst Heather Bellini upgraded the rating on Adobe Systems from Sell to Neutral, and raised the price target from $34.00 to $48.00.

In the report, Bellini noted, “We upgrade ADBE from Sell to Neutral with a 12-month $48 price target. Since we added ADBE to the Sell List on 7/12/11, the stock is up 47% vs. the S&P up 21% (LTM ADBE is up 37% vs. the S&P up 17%). The stock’s relative outperformance comes as investors have given the stock credit for a more normalized operating model post the transition. At around $44 the stock currently trades on 30X consensus’ NTM EPS forecast vs. the three year historic average of 14X on compressed earnings (consensus is at $1.45 for FY13 vs. $2.36 in FY12).”

Adobe Systems closed on Wednesday at $44.70.

So…knowing they have the creative community by the balls because of the lack of “viable alternatives” to their applications, Adobe moves forward with the subscription only pricing scheme…and the biggest investment bank in the game upgrades their stock outlook by more than 40% on the news. And yet there are still those who think Adobe has OUR best interests at heart. If this isn’t a wakeup call, then what is?!!


6 thoughts on “Adobe & Goldman Sachs – A Match Made In Heaven?!!

  1. It sounds to me like Goldman Sachs thinks the move to CC is a sound business decision that will bring additional customers and additional profits to Adobe. Why is this a bad thing?

    Bret..I’m as big a Capitalist as the next guy, but with all the other news that has come out in the past couple of weeks about Adobe’s move to a subscription only pricing scheme, having Goldman Sachs ‘liking’ the idea hardly makes it a good thing for users of Adobe software. If this plan goes forward, it’s a given that Adobe will make a lot of money….perhaps an obscene amount of money…but I’ve yet to see any value in this plan for me or people like me. BT

  2. Well, one way to make some money off of this fiasco, is to go long on Adobe stock. When the backlash really hits, short it.

  3. Sucks for the users with really high switching costs. I have to think Adobe could have reached this goal in a way that wasn’t abrupt and didn’t piss off a loyal group of users.

    Time will tell if this is a good long-term decision. The switching costs are fairly high right now for serious users of Photoshop. If Adobe becomes too aggressive with its pricing, then that will open the door for competitors to improve their value proposition. If I had to guess, I think Adobe will be successful in transitioning its user base to the ‘cloud’ because the alternatives are not that compelling. Also, some of the alternatives (kind of) are Adobe products (e.g. Lightroom). After a couple of years, Adobe will try and push the envelope with price increases (probably 3-5% annual price increases) more users will drop off and go to competitors with better value propositions (but inferior capabilities). Adobe won’t want to reduce the pricing for everyone to maintain market share. They will probably add more features to Elements and Lightroom to try and retain those that are more price sensitive. Eventually, competitors will have added enough new users and continually improved their product to be a serious threat to Photoshop and either pricing will decline or Adobe will lose share. It will be a long process because of how many years of development Adobe has in its suite, but it will eventually happen. If Microsoft is not impenetrable, then no company is especially in tech.

    The ones that will really be paying more several years from now will be those professional photographers whose livelihood depends on Photoshop. There are some current users that would pay $100 a month for Photoshop and some that will only pay $5 a month for Photoshop. The trick for any company is to try and get everyone to pay the most their are willing to pay. This subscription model along with some less robust alternatives (Elements, Lightroom, etc.) may be Adobe’s attempt at price discremenation in the long run. Of course, it opens up the company to competition because the size of the profits will be enticing to competitors. If I were a betting man, I would bet that Adobe will not be the industry leader in photo editing software 20 years from now (maybe even sooner).

    Also, Goldman’s opinion is intended to get investors to buy or sell the stock (thus generating trading commission) not to actually get it ‘right’ in the long-run. In otherwords, you can lose a lot of money listening to Wall Street!

  4. BT writes, “having Goldman Sachs ‘liking’ the idea hardly makes it a good thing for users of Adobe software.”

    I think that the best thing for users of Adobe software would be for Adobe to continue being in business. I’m not really concerned with their profit margin as long as they keep producing and supporting great software. That is why I’m slow to jump on the “Bash Adobe” train. Going to the cloud will save Adobe tons of money in packaging discs and printing manuals. If that leads to greater profits for them then I have no problem with it.
    The good news in all of this is that it may create more competition for Adobe and that helps everyone.

    Bret…Adobe was hardly about to go outta business! Billion-dollar net profits sort of rule that kinda thing out. And they have been offering download versions of their products for years, so the packaging and delivery argument as a cost savings measure sort of falls flat, too. This isn’t about ‘bashing’ Adobe…it’s about trying to trying to get them to give their customers the tiniest measure of choice! Their One Size Fits All plan is simply going to cause a tremendous number of casual photographers to move to other products and leave those who remain with an ongoing subscription plan that is neither cost effective nor one that guarantees the products will move forward, despite the promises from Adobe. BT

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