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New Addition: Adobe

Adobe is a great business. It is made up of 3 businesses: Creative cloud, Document Cloud and Experience Cloud.

The Creative Cloud includes Photoshop, Illustrator and Premiere Pro amongst other class leading software. It is a subscription business with fantastic revenues protected by a wide moat. Competing against the Adobe Creative cloud products is very difficult when the creatives are taught on Adobe products and industry professionals use their files as the standard file types. The creative cloud provides a large proportion of Adobe’s revenue and we see continued growth based on their R&D and the growing digital content market.

The Adobe Document Cloud is centred around their creation – the PDF file format. Never has the ‘Portable Document Format’ been so needed as now with all the different ways we view documents from mobile phones, watches, devices, laptops to TVs. The Covid remote work environment has also driven increased adoption of electronic signature and digital form adoption and provides growing revenues.

The Adobe Experience Cloud builds off the Creative Cloud and the Document cloud client bases and is a leading platform for marketing CRM. Whilst this area has some competition, Adobe is looking to extend its current narrow lead in this field and is actively acquiring businesses to achieve this.

Adobe, under the outstanding leadership of Shantanu Narayen, has seen earnings per share grow at 19.77% for the last decade. We expect them to continue to grow over the coming decade at a solid rate.

Our investment focus is on outstanding businesses especially those with fortress balance sheets and exceptional allocation of capital by management. Adobe fits this bill. Like 87% of our portfolio, it has a net cash position and has typically maintained a conservative balance sheet. Shantanu has also been consistently buying back shares and shrinking the share count by approximately 1% per annum over the last 5 years which will continue to be accretive to earnings per share and shareholder returns over the long term .

A great business we are happy to finally be able to include in your portfolio.


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