The stock images, videos, and music providers – Getty Images and Shutterstock – have agreed to merge to create a $3.7 billion company. Getty shareholders will own 55% of the combined entity, and Craig Peters – current CEO of Getty will head the combined entity. This news was welcomed by investors of both companies, with GETY stock rising 25% and SSTK stock rising 14% on Tuesday, January 7. With this merger, the combination is expected to result in annual cost savings of $150 million to $200 million. The new combined entity will result in a bigger competitor for Adobe stock.
Adobe also offers a collection of stock images, graphics, and videos. While Getty and Shutterstock have a collection of 470 million assets each, Adobe’s collection is smaller at over 300 million assets. There has been a rise in demand for images and videos amid the increasing adoption of generative AI. Adobe already offers AI-generated images and variations and text-to-image capabilities through its Firefly AI tool. Getty is also working on AI capabilities to enhance its offerings.
Adobe stock has had a rough past couple of months, falling from levels of over $520 in early December 2024 to $420 now. Much of this can be attributed to a Q4 miss and rising investor concerns about the company’s AI advancements, which seem to not be paying off as anticipated. If you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Adobe’s revenue rose 11% y-o-y to $21.5 billion in fiscal 2024 (fiscal ends in November). Digital media segment sales grew 12% y-o-y to $15.9 billion, and document cloud sales were up 18% y-o-y to $3.2 billion. The company is benefiting from migration of customers to high-priced subscription variants, driving the average revenue per customer higher. Although Adobe seems to have a stability in revenues from its subscriptions offerings, the AI advancement hasn’t helped it achieve a better revenue growth rate thus far.
Separately, check out Why Did Moderna Rise 12%? and What’s Happening With Aurora Innovation Stock?
Looking at ADBE stock performance over a slightly longer term, the changes over the last four-year period have been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 13% in 2021, -41% in 2022, 77% in 2023, and -25% in 2024. While ADBE stock has seen mixed growth over recent years, the Trefis High Quality Portfolio, with a collection of 30 stocks, has provided better returns with less risk versus the benchmark S&P 500 index over the last four year period; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Now, could ADBE face a similar situation as it did in 2021, 2022 and 2024 and underperform the S&P over the next 12 months — or will it see a recovery? Even if we take into account the increased competition in stock images offerings and the overall slower than anticipated revenue growth from AI, ADBE stock seems to be undervalued. At its current levels of around $420, ADBE stock is trading at 9x trailing revenues, versus the stock’s average P/S ratio of 15x over the last five years. While a slight decline in valuation multiple seems justified, the current gap versus the historical average seems high, and we think this should narrow over the coming quarters. While Adobe is yet to see any meaningful growth from its AI investments, it stands to benefit from enhanced creativity and productivity solutions resulting in increased user engagement. As such, investors will be better off picking ADBE stock in the current dip for robust long-term gains, in our view.
While ADBE stock looks like it is undervalued, it is helpful to see how Adobe’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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