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Stock Analyst Update

Adobe Scoops Up Marketo

The wide-moat firm's largest deal to date will further bolster its Experience Cloud as it attempts to widen its competitive positioning against Salesforce, Oracle, and SAP.


Wide-moat  Adobe (ADBE) is acquiring Marketo, a software-as-a-service application vendor for marketing engagement, for $4.75 billion in what amounts to Adobe’s largest deal ever. We are maintaining our $245 fair value estimate. As we iterated in our third-quarter note on Adobe on Sept. 14, in which the rumor of a potential acquisition first surfaced, we believe Adobe’s acquisition of Marketo will further bolster the firm’s Experience Cloud as it attempts to widen its competitive positioning against Salesforce, Oracle, and SAP. This is the second major acquisition for Adobe this fiscal year, as the firm bought e-commerce firm Magento for $1.68 billion in May. As of Adobe’s last fiscal quarter-end, it held $4.9 billion in cash and short-term investments, and it intends to fund the Marketo acquisition through cash on hand and new borrowings. As a reminder, Adobe approved an $8 billion buyback earlier this year, proving the firm’s robust cash flow allows it to return cash to shareholders and be acquisitive simultaneously. While we still model solid growth for Adobe, we would wait for a wider margin of safety before investing in the firm.

In terms of Marketo, the marketing software player went public in 2013, before being acquired by Vista Equity Partners for $1.79 billion in 2016. Vista’s playbook is to acquire high-growth, mission-critical enterprise software firm and improve their operations. Visibility into Marketo’s financials is limited, but its most recent 10-K indicated that it did $209 million on the top line in 2015. Adobe’s $4.5 billion acquisition represents a significant premium to Vista’s original buyout in only a couple years.

On a stand-alone basis, we view Adobe’s Experience Cloud, which includes advertising, campaign management, and analytics, as one of the broadest digital marketing offering. Experience Cloud grew 21% year over year in Adobe’s third quarter. Magento and now Marketo help to fill potential holes in Adobe’s offerings, in our opinion.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.