Can the Gig Economy Continue to Support Adobe Stock?

It’s been almost a year since I last did a full feature story on Adobe (NASDAQ:ADBE), at least by my books. And what a trip down memory lane this is with Adobe stock!

Adobe (ADBE) logo on wall of corporate building.
Source: r.classen /

On Feb. 18, the U.S. had yet to officially post a novel coronavirus infection. Instead, the waters off Japan was at the heart of the media’s focus, with governmental officials wondering what to do with the Diamond Princess cruise ship’s quarantined passengers.

Of course, the entire script flipped upside down and then launched into a parallel dimension. Yes, Japan is suffering an uptick in Covid-19 cases, as are many parts of the world. However, the U.S. rapidly transitioned from being an insulated country to one that is consistently struggling to contain the outbreak.

Frankly, at this point, we’re at the mercy of Mother Nature, which presents an interesting backdrop for Adobe stock.

Demand from Gig Workers Versus Economic Devastation

On one hand, I can see why many are still bullish on shares. For instance, one of the top market performers of 2020 is Zoom Video Communications (NASDAQ:ZM). Thanks to its easy, intuitive teleconferencing platform, Zoom became part of the pop culture lexicon – for better or for worse.

In my view, Adobe stock is more akin to Microsoft (NASDAQ:MSFT), a suite of professional creative tools for both worker bees and independent contractors.

Of course, the latter is known in contemporary business parlance as “gig workers.” Due to the unprecedented disruption caused by Covid-19, we’re all gig workers in a way. Theoretically, white-collar employees might view this lifestyle as desirable, promoting a greater consumer base that will ultimately benefit Adobe stock.

But on the other hand, we may be underestimating the devastation of the coronavirus pandemic. While the pain was most evident in high-contact businesses such as restaurants and movie theaters, it’s trickling down to other sectors.

For instance, the employment level of those with bachelor’s degrees and higher has dropped nearly 3% between August and November, whereas the employment level for all workers increased 1.7% over the same frame. If you’re thinking about Adobe stock, you’re going to want to pay close attention to upcoming economic data.

Adobe Stock to Possibly Benefit from Interstate Transfers

Frankly, the closer you do pay attention, the likelier it is that you’re coming away with a pessimistic attitude. Primarily, National Institute of Allergy and Infectious Diseases director Dr. Anthony Fauci stated that even with the distribution of the coronavirus vaccine, Americans may have to continue mitigation protocols until winter of 2021.

As much as you want to throw away your face masks and get back to normal, we might have to wait another year. And that could mean lower economic output, resulting in an elevated personal saving rate. Further, that might imply that businesses will scale back, both on employees and contractors. That’s not something you want to see if you’re bullish on Adobe stock.

However, Americans have proven very resourceful during this Covid-19 pandemic and I’m not being sarcastic. I’m genuinely impressed as I’m sure the world community is as well. Moving forward, then, I anticipate that many gig workers and those seeking the independent lifestyle to relocate to business-friendly states like Utah.

If I had to guess, I’d say that this transition is inevitable. For example, California has really destroyed its burgeoning gig economy with its ridiculous AB 5 law. This bill attempted to force ride-sharing firms like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) to reclassify their drivers as employees. Sure enough, Proposition 22 essentially nullified AB 5, but only for ride-sharing drivers.

Thus, if you’re a comedian or performing artist, you can’t work independently. You’ve got no choice but to move.

Employment level comparison: Utah, California, U.S. average
Source: Chart by Josh Enomoto

Frankly, the data incentivizes people to seek out business safe havens like Utah. For instance, the Beehive State saw its employment level drop only 1% from the first quarter of 2020 to Q3.

But in the same frame, California saw its employment level drop 6.7%, while the national level has been truly struggling, down 7.4%. In other words, the K-shaped recovery may not be about income categories as it is about state laws. Those that have sensible rules will likely fare better than others.

ADBE May Trudge Along Slowly

Having said that, a major risk factor – perhaps the biggest – is that money velocity has slowed down to worrying levels. According to a paper submitted to the National Bureau of Economic Research, M2 velocity – which is the money supply defined by M1 components plus saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals – fell to a low of around 1.25 during the Great Depression.

Here’s why this is important: during Q3 2020, M2 velocity was 1.146. By the context of money velocity, our economy isn’t in a recession, it’s in a depression. It doesn’t look or feel like it’s a depression, which is why this period is so treacherous.

Of course, the counterargument is that velocity could pick back up as consumer confidence returns. If so, Adobe stock is worth consideration, especially since the gig economy will likely play a larger role than it did before the pandemic.

No matter what, I don’t think we’ll see the sizable returns that Adobe stock produced in 2020. If you’re okay with that, ADBE is a cautious buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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 for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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