🗞 These 12 Stocks Have Done +20% for 20 Years

Happy Sunday!

Here’s what’s on the docket for this week’s newsletter:

• 📈 12 Companies that have grown Revenue 20%+ for 20 years

• 🖥️ An Inside Look at Adobe’s Latest Quarter

Let’s dive in!

Featured Story #1

20% Growth For 20 Years: 12 Companies That Have Actually Done It

Very few companies have been able to sustain a revenue growth rate above 20% for the last 20 years. In fact, even some of the world’s best companies like Microsoft and Apple have failed to hit that mark.

However, thanks to the FinChat screener, we were able to identify the select few that have.

Here are 12 companies that have exceeded 20% growth for the last 20 years:

12.) Monster

20-yr Revenue CAGR: 20.7%

11.) Monolithic Power Systems

20-yr Revenue CAGR: 20.9%

10.) NVIDIA

20-yr Revenue CAGR: 22.6%

9.) Intuitive Surgical

20-yr Revenue CAGR: 22.7%

8.) Netflix

20-yr Revenue CAGR: 24.4%

7.) Amazon

20-yr Revenue CAGR: 25.5%

6.) Alphabet

20-yr Revenue CAGR: 26.7%

Platform Update

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Partner Spotlight: Best Anchor Stocks

An Inside Look at Adobe’s Latest Quarter

Another quarter…and another selloff for Adobe’s stock due to soft guidance. Adobe had seen its shares trade significantly lower after 3 out of the 4 previous earnings releases, and it was not going to be different this time. The company’s stock sold off significantly the following day:

It’s surprising to see such volatility around earnings events for such a large company (+$200 billion market cap), but I guess this is the price one has to pay when the market is unclear whether Adobe will be an AI winner or an AI loser. The reality is that many investors are growing concerned about Adobe’s monetization strategy around AI, or better said, the lack of such strategy.

Adobe by the Numbers

Adobe reported solid numbers in Q4 and FY 24, and it seems reasonable to assume these were not the cause of the post-earnings drop. The company has now beaten analyst estimates for EPS and revenue the last 16 quarters and 14/16 quarters, respectively. Not a bad track record if you ask me.

Software businesses are typically touted as some of the best business models on earth for several reasons, steady growth probably being one of them. Since transitioning to a subscription-based model coming out of the GFC (Global Financial Crisis), Adobe has grown its revenue by double-digits for 10 consecutive years. While double-digit growth over a decade might sound doable if one is used to looking at high-quality businesses, we shouldn’t take it for granted.

Another reason why software businesses are such great business models is their cash conversion. These businesses tend to get paid before providing the service, so their cash conversion is typically above 100%. Adobe generated CFO of $8.1 billion, although that’s “helped” by $1.9 billion in Stock Based Compensation (SBC). SBC continued to be high but grew slower than revenue, which is a positive.

To offset the dilution created by SBC, software businesses typically repurchase shares. Adobe repurchased 17.5 million shares during the year, reducing its outstanding shares by 2% (so, more than offsetting SBC).

Management could (assuming no SBC) repurchase around 8% of the outstanding shares at current prices, a percentage that increases as the stock price decreases. What I mean by this is that there’s little incentive for Adobe’s management to be optimistic with their forward-looking commentary when they want to repurchase shares. Only a fool would want to repurchase shares at a higher price.

Proliferation vs Monetization: Adobe’s AI Tug Of War

The dilemma between proliferation and monetization of Adobe’s AI tools is what arguably worries the market the most. It’s a tug-of-war between analysts and management. Management currently sees proliferation (rather than monetization) as a priority:

“Proliferation as we’ve said for some time is one of the top priorities because we know that if people start using our products today, we have the opportunity to continue to deliver value for a long time to come.”

The market hates this because it doesn’t know if the investments will bear fruit, but it’s honestly great to see Adobe still being able to grow through TAM expansion rather than pure price realization. Less volume and higher prices would clearly signal a mature business, but that seems far from being the case at Adobe.

Meme of the week

It’s that time of the year.

Set those auto replies for work and start carving out more time for family (or personal investment research on the FinChat Terminal 😉).