Adobe's Opportunity Is $48 Billion, But Expenditures Might Limit Investors

• Adobe Systems Incorporated ADBE shares have appreciated 16 percent year-to-date and are trading close to their 52-week high of $87.25.
• Morgan Stanley’s Keith Weiss maintained an Equal-Weight rating on the company, with a price target of $84.
• The benefits of Adobe’s $48 billion market opportunity may be limited by the increase in its operating expenditure, Weiss pointed out.

Adobe’s management outlined the components of a $48 billion market opportunity that the company intends to target. Adobe also announced several incremental products depicting continued innovation across its portfolio, besides providing details of the solid execution of its Cloud transition plan.

Analyst Keith Weiss mentioned, “[Adobe’s] mobile apps, enhanced web design capabilities and personalized websites for creative pros (Adobe Portfolio) continue to demonstrate the strong value proposition of the Creative Cloud.”

The company’s $48 billion TAM opportunity comprises of $17 billion Creative, $3.9 billion Document Cloud and $27 billion in Marketing Cloud, Weiss mentioned.

The company reduced its revenue and EPS targets for FY16 to $5.7 billion and $2.70, respectively, as compared to the consensus and Morgan Stanley expectations of $6.0 billion and $3.21, respectively. Adobe also extended its long-term revenue growth targets of over 20 percent growth to FY18.

Although Adobe’s management has been able to keep operating expenses under control during the transition, it will need to spend on Marketing Cloud COGS, incur greater S&M expenses to sustain business momentum and continue TAM penetration in the near future, Weiss pointed out.