ANZ Telecom, Media and Technology: APAC Focus: Positioning for a potential re-rating

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ANZ Telecom, Media and Technology: APAC Focus: Positioning for a potential re-rating

ANZ Telecom, Media and Technology UBS Research

how long could this tech de-rating last?

Whilst difficult to find a sector re-rating catalyst in the short term for ANZ SaaS, we

examine Adobe's financial and share price performance through 2011-15, a classic case

study of a successful business pivot during the rise of Cloud, which at the time, created a

perceived existential risk for incumbent desktop software providers.

Case study: Cloud transition with Adobe

Adobe has been a classic case study for a successful transition from desktop based

solution to cloud/SaaS. Our analysis of the period between 2011-15 shows:

Share price was weak post GFC and took a further step down in 2011 as Cloud

concerns impacted sentiment across the Software space. During this period,

Adobe's P/E derated from ~15x to ~9x;

Adobe first launched its Cloud solutions in Oct-2011, around 5 months post the

start of the Cloud de-rating cycle. Since then we saw Adobe's P/E steadily but

slowly re-rate for 6 months from ~10x to 13x (share price increased +39% through

this period)

Adobe started reporting Digital Media (Cloud) ARR in 2012. Stock saw significant

re-rating after Adobe reported in mid Dec-12, at which point we saw Digital Media

ARR reach ~20% of reported group revenue, giving market confidence on ability

to benefit from Cloud strategy;

May-13, Adobe announced they will be phasing out traditional software products

and future updates and products would be cloud only. Market largely looked

through this transition despite short-term impact to revenue growth as Adobe

focused on transitioning from high one-time software revenues to lower but

annual SaaS fees.