Time to sell Adobe (ADBE) shares???

By: ispeculatornew
Date posted: 04.30.2010 (6:02 am) | Write a Comment  (0 Comments)

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Adobe is a software company known mainly for two of its core products; Adobe photoshop and Adobe Flash. Flash is the language behind most of the videos viewed on the web right now, it is a language that was adopted early on by some of the major industry players such as Youtube. Generally, the company has been very quiet and has little competition in its very specialized segments. So how in the world did it end up with Apple (AAPL) as an enemy? Having one of the biggest and fastest growing companies in the tech space write a post describing why it will not support Adobe’s technology is certainly not a good sign for Adobe. That is exactly what happened today on Apple’s blog as Steve Jobs wrote a long post explaining exactly why Apple does not and does not intend to support Flash for its Ipod/Iphone/Ipad business. There are workarounds for specific applications such as Youtube but Apple has complete control over these workarounds and could change them at any moment in time.

The arguments are convincing and it will be interesting to see what Adobe’s response will be. They have been very vocal about their frustration regarding Apple so it would be surprising to not get a reply from Adobe. That being said, how much does this hurt Adobe? In reality, I would say not that much. It will certainly hurt the Flash revenues but those are not a major part of Adobe’s revenues. However, I think it could be seen as a similar situation as Apple vs Amazon where Adobe could be losing focus if it spends too much energy in this battle.

But what is actually happening?

The facts are simple. If Apple continues to refuse to support Flash in its devices, developers will be forced to work on alternatives as Apple continues to gain market shares. Those alternative languages are already very viable options and I would be very surprised if Flash didn’t lose some “market share” in the coming months because of the Apple problem. Sad? Absolutely. But unfortunately, especially after such an email, there does not seem to be much that can be done.

So is it a good investment?

The more worrying trend in my opinion about Adobe is its valuation, just take a look at the numbers below and you will see what I mean. A company that has negative growth should not sell for such a high valuation.

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaEarningsRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
EBAYeBay Inc25.6110.313.329.7411.563.5616.260.8810/14/201514.3114.876.07
FBFacebook Inc92.95797.534.8822.4758.364.6714.020.8510/28/20154.7758.4N/A
EXPEExpedia Inc124.8835.4722.0748.8620.83.8616.351.1410/29/201544.7114.981.95
NILEBlue Nile Inc32.9739.6523.48-6.415.224.140.770.710/30/201538.998.446.53

So the bottom line, should Adobe (ADBE) be sold? I don’t think the recent news and blog post by Apple should be the reason to do so. But at its current valuation, I will certainly keep it in my mind in my future stock picks.

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