One of the biggest surprises of 2019 was software as a service (SaaS) giant Adobe Systems (NASDAQ:ADBE). While many Wall Street analysts understandably focused on the sexy names within the technology space, ADBE stock gained serious respect, returning stakeholders a whopping 50%. The thing is, Adobe shares haven’t stopped their momentum, gaining 15% year-to-date. Naturally, investors wonder if they’ve moved too far too fast.
Of course, I understand the skepticism behind ADBE stock. While one of the most powerful names in SaaS – and Adobe more than proved the viability of this business model – the underlying company is levered toward artistic and creative industries. As you know, both the professional world along with the academic industrial complex emphasizes STEM (science, technology, engineering, math), not the arts.
Furthermore, investors fear holding the bag on ADBE stock if they buy in now. While shares are approaching $400, it wasn’t too long ago that they were in the double digits.
Additionally, ADBE stock endured a very long spell of frustrating trading. After peaking in 2000 with an average share price of $29.53, it took five years for Adobe to exceed this prior benchmark. And from 2000 through 2012, the equity’s price tag averaged only $28.38 due to largely sideways trading.
But from 2013 onward, Adobe’s share price averages $165.74; hence, the hesitation in buying a “non-STEM” tech stock.
That said, in 2019, Adobe Systems CEO Shantanu Narayen justified ADBE’s meteoric rise, noting that its momentum is “fueled by the explosion of creativity across the globe and the widespread business transformation agenda to deliver engaging customer experiences.”
Should you believe Narayen’s obviously biased words? Yes. You’d be crazy not to.
ADBE Stock Is a Near-Pure Play on the Gig Economy
Every time a publicly traded company rockets higher in the markets, investors always ask the same question: is it worth buying the stock now?
To provide an answer, analysts typically reference revenue forecasts and model in price estimates based on historical trends. For ADBE stock, I believe a better approach is to consider what first drove shares out the doldrums and then, if this catalyst will remain viable.
In my opinion, it’s the gig economy that’s responsible for the uptick in Adobe’s market value. Yes, the transition from “physical” software to SaaS was pivotal. But changing the platform doesn’t mean much if there’s no demand. What makes Adobe compelling is not only is there demand, it’ll keep rising higher.
According to a survey by MBO Partners, in 2011, the share of high-earning independent workers was 12.5%. By 2019, this figure jumped to 20%. Subsequently, ADBE stock was near the tail end of its sideways consolidation pattern in 2011, averaging $30.21. Eight years later, shares averaged $284.
Interestingly, the correlation coefficient between these two metrics is nearly 90%, which indicates an extremely strong direct correlation.
Not only that, in 2017, surveys indicate that 57.3 million Americans classified themselves as freelance workers. Experts predict that by 2028, this figure will jump to 90.1 million. In other words, the character of labor is transitioning from the cubicle to the coffee shop.
And why shouldn’t it? The beauty of the gig economy is that it focuses on the quality of the work, not the presence of the worker. With technology allowing anyone with talent and skill to offer myriad services to various companies, Adobe’s SaaS platform will only grow in relevancy.
Is ADBE stock worth it? Only if you believe in the gig economy!
Be Smart and Tactical
Now, there is something to be said about market timing. Since the beginning of last November, Adobe shares have surged nearly 37%. In my opinion, you can be smart about the company’s long-term prospects and be tactical at the same time.
Therefore, if you’re interested in the equity, I’d take a small bite now, but keep the powder keg dry for dips. Even with Adobe’s positive fundamentals, mass market psychology is not something you want to dismiss.
Nevertheless, Narayen’s bullishness in his organization is spot on. Companies are always seeking ways to maximize their productivity while keeping costs down. There’s no better way to do this than to outsource functions such as content marketing to small players (like me).
Corporations receive high-quality work without the overhead of an employee. And independent contractors typically receive higher take-home pay than they would performing the same function as employees. This win-win dynamic is what will ultimately keep moving ADBE stock northward.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights to the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.