By Andrew Leckey

About Adobe Systems Inc.

Ticker: ADBE

Exchange: Nasdaq

What does the company do? Software company

2010 Financial report (FYE 11/30/10):

Net sales: $3.8 billion

Net income: $775 million

Q. What's the outlook for my shares of Adobe Systems Inc.? They have disappointed. -- M.A., via the Internet

A. Coming off a lackluster year, this pioneering software company that is famous for its Flash, Photoshop, Illustrator and Acrobat products should have a better 2011.

Online video is a booming business, aided by the popularity of mobile computing and increasingly sophisticated website content. An improving economy should provide an added boost.

One drawback is that Apple Inc.'s iPhone and iPad do not support Adobe Systems' Flash Player, and Apple CEO Steve Jobs has in fact been openly critical of Flash.

Nonetheless, Adobe Systems is continuing with this popular product and upgrading it because of the strong market it has found in devices using Google Inc.'s Android mobile operating system. To enhance Flash-based applications, it purchased Omniture in 2009 in order to gain its tools and analytics engine.

Shares of Adobe Systems (ADBE) are up 12 percent this year following a decline of 16 percent last year. While not as enormous as some competitors, it is dominant and profitable in its niche, with plenty of cash and modest debt.

With so many creative professionals having been trained on the company's Photoshop and Illustrator products, it won't be easy for rivals to overtake its powerful influence. Creative Suite 6, the latest version of this group of popular products, is expected to come out this year and improve the company's results.

Its Acrobat PDF has become the standard for portable documents and it also sells a line of digital photography and video editing software to professionals and consumers.

Consensus rating on Adobe Systems stock is "hold," according to Thomson Reuters, consisting of four "strong buys," six "buys" and 18 "holds."

Despite its impressive product lineup, the company is dependent upon the economy and advertising spending. Competitors such as Microsoft Inc. and Google have made inroads into some of its product areas, though Microsoft is hampered by antitrust considerations.

To expand its Flash applications, the firm recently introduced Molehill, a new gaming engine within Flash that allows developers to deliver games online. Retailer GameStop Corp. is offering a suite of games through an online arcade created by Flash. Shantanu Narayen, former president and COO, has been CEO of Adobe Systems since 2007.

Earnings are expected to increase 19 percent this year versus a 4 percent gain forecast for the software industry. Next year's projected 11 percent gain compares to the 23 percent expected industry-wide. The five-year annualized return is estimated to be 13 percent compared to 15 percent predicted for its peers.

 

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