GNU Image Manipulation Program (free, open source), PaintShop Pro (Corel), and Clip Studio/Manga Studio (Smith Micro, SMSI) are helpful and solid software, but they cannot replace Photoshop by any means. Functioning eye-to-eye competition using Adobe Photoshop as an example is lacking, especially when working in a collaborative environment - another sign that Adobe's moat is very wide. At some point, the compatibility of certain filters, file types, et cetera, practically forced commercial users of Adobe software to migrate to the cloud. The 100% shift to a subscription-based cloud service (Adobe Creative Cloud) was announced in 2013, and while I was not a particular fan of that decision from the perspective of a consumer - who now faces recurring payments - it signaled that Adobe was operating in a quasi-monopoly position. As a very satisfied user of their products, I have a good understanding of the ecosystem they have created around Photoshop in particular. The stellar profitability is a strong indication that the company is indeed running a business with a very wide moat that benefits greatly from scale. (taken from the ADBE stock page on Seeking Alpha) Table 1: Selected profitability metrics for Adobe Inc. Adobe's cash return on invested capital (CROIC) is also juicy - in the low 30% range. Adobe's Wide Moat - Photoshop As An ExampleĪdobe boasts a five-year average gross margin of 86.6% (Table 1), and its longer-term gross profitability is also extremely high. In this article, I will give my take on Adobe's moat in the context of its acquisition of Figma (the incumbent UI / UX company) and discuss the stock's current valuation from a duration perspective. Now that the share price has fallen considerably (nearly 60% from the double top formed in late 2021) and valuation metrics have reached quite meaningful levels, I figured it was time to reconsider - maybe it is finally time to buy the stock?

However, the stock's extremely high valuation and high duration (owners are paying for cash flows far into the future, meaning there is a lot of hope for future growth priced into the stock) kept me from opening a long position. ( NASDAQ: ADBE), the well-known company behind creative software like Photoshop, InDesign, Illustrator, et cetera, and the widely used Document and Experience Cloud services, in my own portfolio because of its wide moat and my own positive experiences with the products. Sundry Photography/iStock Editorial via Getty Images Introduction

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