What Can We Learn As Adobe Stock Defies Gravity?

On October 3, 2013, Adobe notified the public of a breach of its security system for customer IDs, and even source code for a number of its most popular products. On December 12, 2013, Adobe announced its Q4 2013 earnings and issued guidance. Y/Y revenue dropped 9.7%, while profits dropped over 13%.

But the next day Adobe stock hit a 52 week high of $61.09. The disconnection between actual business performance, and stock prices for an important mature ISV like Adobe points to an unsupportable high premium priced into stock prices for the technology sector, merely to reward growth in cloud subscriptions, and little else.

An important segment of large consumers of technology (enterprise businesses, and their peers in the public and not-for-profit sectors) located in North America, Western Europe, and Australia/New Zealand continue to require on premises computing solutions. My assumption is not the result of mere conjecture. I base my position on a number of conversations I’ve recently had, on behalf of clients, with contacts participating in some substantial purchases for solutions to enterprise document management, content management and collaboration requirements.

With one exception, all of these contacts have directly expressed a need for on premises computing solutions. Our conversations have not included any mention of the Adobe security issue, but I cannot avoid reaching an important conclusion: information technology buyers have slowed down the pace of cloud/SaaS purchasing as the frequency of bad news on cloud/SaaS offers has increased.

This slowdown has bitten not only Adobe, but also Salesforce.com. I can’t help but think Salesforce.com’s recent “Internet of Things” branding campaign is nothing more than camouflage over product marketing’s fallback to tried and true customer service applications for its CRM tracking infrastructure.

I think a large portion of subscribers to services like Adobe Creative Cloud are either retail customers, or personnel connected to large organizations in the market for remote computing resources capable of supporting the BYOD trend. These subscribers will be the first to abandon subscriptions should security issues worsen.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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