Adobe (NASDAQ: ADBE) is truly an extraordinary company. With headquarters in the Silicon Valley suburb of San Jose, it has over 24,000 employees, and as of 2020, it made revenues approaching $13B.
All around your daily lives there are Adobe products. If your son doesn’t like the way he looks in a given photo, he can no doubt fix it with Adobe Photoshop. If your accountant needs some of your financial information, you can download PDFs (Portable Document Format) of your bank statements and email them to her.
If you’re a graduate student, no doubt you read a lot of journal articles. These too are now all available as PDFs. If your daughter needs to draw some pictures for her science fair project, she can draw them in Illustrator. This list of perfectly useful software packages from Adobe goes on.
Adobe’s founders (Warnock far right, Geschke in the middle) with Steve Jobs (far left). (Source: adobe.fandom.com)
Similarly to the Windows-based graphical computer interface and the mouse used on the first Apple (NASDAQ: AAPL) Macintoshes, the key technology that started Adobe begins in the late 1970s at Xerox’s PARC (aka, Palo Alto Research Center), which was Xerox’s West Coast think tank up until it was spun-off into a separate company in 2002.
Prior to 1982, Adobe’s founders, John Warnock and Charles Geschke, both worked at PARC. They largely invented InterPress, which was a computer language for controlling computer printing. Even though Warnock urged Xerox management to commercialize InterPress, they didn’t see the value in it and refused.
The Printer Language that Started It All
Warnock and Geschke saw huge potential in the concept, however, and left Xerox and formed Adobe in Warnock’s garage at his house in Los Altos, California. They completely rewrote and improved InterPress. They named the much-improved printer language “PostScript,” and it became the standard language for running laser printers.
Apparently, Apple’s Steve Jobs saw the value in PostScript and offered $5 million to buy the company less than a year after its founding. Warnock and Geschke turned Jobs down, but were convinced by Adobe’s investors to sell Jobs a large stake in the company (19%) and pay for a 5-year license to use PostScript on Apple products. Adobe became the first tech start-up in Silicon Valley to be profitable within its first year.
Adobe went on to become the supplier of software that promoted desktop publishing on several fronts. They improved digital typefaces by making them much cleaner and crisper around the edges. They developed new digital fonts and sold the best versions to computer and software developers. Not surprisingly, this was especially attractive to Jobs given his well-known passion for fonts.
More Groundbreaking Adobe Products
In 1989, Adobe released Photoshop. With this software, users could make modifications to digital photographs (or scanned versions of film photos) in ways that were impossible in traditional darkrooms, such as adding blur and color to discrete pieces of photos. Modified photos could then easily be added documents in desktop publishing software, such as FrameMaker. FrameMaker, which is also one of Adobe’s products, was always a better alternative to Word for making complicated documents with graphics and complex text block shapes. It still is.
Adobe Illustrator came out in the late 1980s. It allowed convenient creation of illustrations and drawings for pretty much anything: scientific papers, children’s books, furniture assembly directions, science fairs, etc. Illustrator could also easily be added to documents in desktop publishing software. Although these products, Photoshop, Illustrator, FrameMaker, etc., are groundbreaking products, they have many strong competitors today, as well as back in the 1990s.
The Game Changer
There’s one Adobe product that has exclusivity. This product is the Portable Document Format, more commonly known as PDF. The original goal for PDF was to capture documents from any application, send them to another computer anywhere via email, thumb drive, cloud storage, etc., and view or print them on any machine.
Adobe succeeded in spades on these goals, and now PDF has its own international standard, ISO 3200-1: 2008. This gives PDF longevity and steadfastness. Today, as already mentioned, PDF documents are everywhere, almost as ubiquitous as carbon atoms.
More recently, Adobe has partnerships with a variety of other high-end companies. It has cooperation with NVIDIA (NASDAQ:NVDA), where NVIDIA adds software and hardware features to their graphics cards that specifically accelerate loading of large images created (or modified) in Adobe software.
Nvidia and Adobe are cooperating so that graphics can keep up with Adobe’s software. (Source: blogs.nvidia.com)
Adobe also has an ongoing partnership with famed German automaker BMW. In early March 2022, BMW announced their aim to sell one quarter of their cars and trucks online, sort of like Tesla (NASDAQ: TSLA), within the next three years. It hopes to provide possibilities for higher degrees of customer-directed customization and promote a high-quality, at-your-door delivery program. Adobe has the core competencies to propel BMW to achieving this goal in what BMW calls the digital transformation of its marketing and sales operations.
ADBE Goes Meta
Adobe currently is dedicating substantial resources to developing the metaverse. It will publish new products that contribute to the richness of the future metaverse with ever more realistic 3D graphics and lifelike movements. Like many other companies working on the metaverse, Adobe envisions a highly immersive experience where the graphics and capabilities are so lifelike that the things you do in the physical world will blur with those in the virtual world.
Some of Adobe’s version of what the metaverse could look like. (Source: hersmore.com)
Some expected experiences in the metaverse include visiting virtual museums. Starting a new job? In the metaverse you’ll be able to receive training without leaving home. Of course, there will be shopping!
More and more people prefer to shop online rather than going to physical stores, and the online experience for most stores is getting better and better. In the metaverse, virtual shopping will be taken to a new level. You will be able to walk into virtual stores, pick up products with your virtual hands, inspect them from all angles, and look at them in different colors, or even try out how they function. In the case of cars, you’ll probably be able to take them on virtual test drives on your favorite roads, like Pacific Coast Highway in Southern California! The possibilities are endless.
For all this richness and convenience that Adobe has added to desktop publishing and document circulation and for their fantastic developments in the metaverse, you can be sure it’s a true MegaTrend stock. Its value will continue to grow for many decades. Consequently, we see Adobe as a buy and hold stock and one with which we are comfortable investing in long-term options.
ADBE stock has remained above water over the past 12 months, and it’s starting to gain ground again as the market rebounds, in true MegaTrend fashion. My MegaTrend stocks are the first stocks that investors pile into after a selloff because they have the management and the dominance to set them apart from the competitors. ADBE is still on sale, if you’re looking for a great company with a historic past and an even brighter future.
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