U.S. Markets closed

Adobe Illustrates Why the Cloud Is a Good Place to Be

Motley Fool Staff, The Motley Fool

Willie Sutton was infamously -- though inaccurately -- quoted as saying that the reason he robbed banks was because that was where the money was. These days, the money is in the cloud, and Adobe (NASDAQ: ADBE) has been legitimately capitalizing on its strengths there to grow its software business.

In this segment of the Market Foolery podcast, host Chris Hill and MFAM Funds' Bill Barker discuss the company's second-quarter report, its excellent revenue growth, its acquisition strategy, and why the market was entirely unperturbed by its slightly tepid guidance.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

More From The Motley Fool

This video was recorded on June 19, 2019.

Chris Hill: I feel like almost any business that's in the cloud business is doing well. That's not to knock Adobe and their management. Adobe's second-quarter revenue was up 25%. Their guidance was a little weaker than I think some analysts were looking for. But that's not stopping the stock. It's up another 4% today.

Bill Barker: Yeah, it's continuing to do a great job compounding year over year. It's on a pretty good five-year run, I would say. The segments, digital media was up 22%; digital experience 34%; publishing 12%. All three of the major parts of the company growing better or significantly better than double-digit range.

Hill: Do you know historically if Adobe is an acquisitive company? Obviously, you've got behemoths out there like Microsoft and Amazon, just to name two, who are in the cloud business. My joke at the top aside, there are definitely some smaller players. I don't know if part of what has fueled Adobe for the past few years is being strategic with smaller acquisitions and bringing them into the fold.

Barker: Yeah, it's in large part through acquisitions in 2018, which, for those who can't do math, was last year. You look confused. [laughs]

Hill: Of the two of us in the room, you're better at math than I am, so that's fair.

Barker: Last year, one year difference. Magento and Marketo, I don't know that I'm even pronouncing Marketo [correctly], were acquired. They've been well integrated into the platform and are contributing to that 25% annual growth. A little harder to grow when you're at the size that Adobe is at something approaching 25% without making some good acquisitions. Even given how much business is moving to the cloud, that kind of growth needs some acquisitions in most cases.

Hill: Do you think that's why the guidance was maybe a little weaker than people were expecting? Just because there's only so much you want to telegraph what you're going to be doing when it comes to acquisitions?

Barker: Well, they have a history of being pretty conservative with their guidance. As you can tell from the market's reaction today, basically, people are blowing that off.

Hill: [laughs] Nobody believes them.

Barker: Yeah, like, that's nice. They've given some conservative guidance. We know that, given their history -- and this is the kind of thing that you only achieve over time, is the belief by the market that, "Oh, these guys are going to do better than they're saying."

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such. Bill Barker has no position in any of the stocks mentioned. Chris Hill owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Microsoft. The Motley Fool recommends Adobe Systems. The Motley Fool has a disclosure policy.