I regularly pound the table regarding two main themes – the road to wealth is paved with tech and it’s important to take the long view.
And both those factors clearly played a huge role in a stock that has gone up by more than 1,000% since I first talked about it on May 31, 2013.
See, as that chat shows, I was way out in front of the pack when it comes to that big call.
The thing is, I can look ahead to see which investments are going to absolutely crush the market because of one of my biggest rules of tech investing, “ride the unstoppable trends.”
And on that day, I claimed that cloud computing was in for a massive uptrend. And if anything, I was too conservative. I mentioned a report that same week that cloud computing would reach $241 billion in 2020.
Instead, Market Data Forecast claims that the sector grew to $371.4 billion.
And now, you may recall that field is expected to pull off an encore, and more than double to $832.1 billion in the next five years. I also told you of a legacy software firm that was using the cloud to add recurring high-margin sales.
Let me show you why there’s still so much upside ahead…
Faster and Cheaper
I have to admit I do have a bit of an unfair advantage when it comes to the field of cloud computing, the practice of hosting data and applications at remote centers.
I was an early advocate of this technology. That’s because I met with a pioneer in the sector in the late 1990s in downtown Oakland.
I’ve long since forgotten the name of the firm and its CEO. But I remember as though it were yesterday watching him draw and label various technology clouds.
The upshot was simple, powerful, and very profitable. Computing would become so pervasive that it’s like all that data is raining down from the cloud.
Which brings me back around to fateful message I shared more than seven years ago.
At the time, I mentioned that cloud computing was going to give entrenched, big-cap tech players the kind of profit growth you normally only see with small caps.
The reasoning was simple. By moving data and applications to the cloud, big firms could greatly cut their overhead costs and turn those savings into a larger bottom lines and profit growth for shareholders.
At the time, some 88% of 1,300 information technology managers surveyed said they adopted the cloud specifically to lower their costs. But 56% said making use of cloud services had already improved their bottom lines.
That’s not even counting other possible savings from moving to the cloud.
As I said then, large software suites are very complex packages with millions of lines of code that require a lot of computer space.
That’s why it often takes large software firms two years or more to come up with an update to these products.
After that, the software would be burned onto CDs. Those discs are then placed inside boxes that utilize glitzy graphics and anti-theft packaging and are shipped out to retailers.
With the cloud, all that goes away. Updates and features can be released quickly, and there’s no time or money wasted on packaging and shipping.
Now, don’t get me wrong. As a former musician, CDs hold a special place in my heart. I’ve spent quite some time over the years having artwork designed for my CDs and also having photographs professionally edited and color corrected.
All using software made by the firm I’m telling you about today.
But for tech companies, moving to the cloud has been an enormous driver of profit growth. Which brings me to the company we talked about those seven years ago.
I bring the company up to you today for a very good reason. Fact is, the firm recently reported record revenues…
If you’ve followed along with me for any length of time, Adobe Systems Inc. (ADBE) will ring a bell. Personally, I’ve been tracking the company for some 30 years.
Founded in 1982, Adobe was and still is one of the most respected software firms in the world. It’s held in high regard by creative professionals for its software packages, including Illustrator for creating, editing and managing graphics, and Photoshop for managing and editing pictures.
But seven years ago, the slow and costly two-year cycle of releasing software on CDs just wasn’t working. So, Adobe began moving over to its Adobe Creative Cloud, which clients subscribe to and pay a monthly fee to use a suite of Adobe’s software services, automatically updated.
It’s been an astonishing success. Taking the long view here, as I keep saying, really paid off.
The Best Is Yet to Come
In fact, if you’ve been following along since I told you about Adobe seven years ago, your peak gains would have reached an astonishing 1,046%.
And given Adobe’s recent earnings for the fourth fiscal quarter, there’s still plenty of upside ahead.
Despite Covid, the firm broke its all-time quarterly revenue record, making $3.42 billion. That’s 14% more than the same quarter a year prior. Operating cash flow also hit a record high at $1.8 billion.
Now, that quarter was no exception. Adobe’s revenue for the fiscal year as a whole came in at $12.87 billion, 15% higher than the year prior. Net income for the year, meanwhile, grew a whopping 78%.
And for the next fiscal year, Adobe is targeting an even larger revenue jump of over 17%, to more than $15 billion.
At this rate, the firm is growing per share profits at 29% a year, meaning earnings will double in roughly 2.5 years.
Add it all up and you can see that I was dead on the money with call about Adobe and the power of the clock.
And that taking the long view in a case like this is a great way to dramatically improve your net worth.
Cheers and good investing,
— Michael A. Robinson
Source: Strategic Tech Investor