Adobe's (ADBE) Magento Acquisition Affects Shopify & Wix

Adobe Systems (NASDAQ:ADBE) is set to acquire cloud-based e-commerce content management system (CMS) software provider Magento for $1.68 billion. The company offers software for developing and operating web stores, handling online purchases, shipping and returns.

Magento generated revenues of almost $150 million in 2017. However, due to purchase accounting rules, Adobe will not be able to recognize most of the company’s revenues over the next 12-months. This is expected to hurt the bottom line in fiscal 2018.

Magento Improves Adobe’s Competitive Prowess

Nevertheless, we believe Magento takeover will improve Adobe’s competitive position in the e-commerce marketing market, which is currently dominated by salesforce.com (NYSE:CRM) , a Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, salesforce has become a dominant player primarily due to its 2016 acquisition of Demandware, a cloud-based provider of e-commerce services to big as well as small businesses.

Moreover, the buyout strengthens Adobe’s presence in the CMS segment of the e-commerce market and intensifies competition for Shopify (NYSE:SHOP) , a Zacks Rank #3 (Hold) stock. No doubt, shares of the Canadian company declined more than 3% in pre-market trading.

Notably, Adobe shares have returned 70.6% in the past year, while Shopify gained 60.5%.

Further, the acquisition will boost Adobe’s competitive position against Wix.com (NASDAQ:WIX) , another Zacks Rank #3 stock. The company offers ready templates, and drag-and-drop editor to make web stores look professional without any design experience.

Wix declined almost 4% to close at $85.50 on May 21. Shares have returned 16.4% in the past year, significantly underperforming Adobe’s rally.

Magento Expands Adobe’s TAM

Per Adobe, “Magento Commerce Cloud brings together digital commerce, order management and predictive intelligence into a unified commerce platform.” Magento Commerce Cloud will be integrated into Adobe Experience Cloud, a suite of digital marketing services that include advertising and analytics tools.

The acquisition will help Adobe address the needs of both B2B and B2C customers globally and into varied industries. Moreover, Magento supports $155 billion in gross merchandise volume and has a strong clientele that adds to Adobe’s customer base, per Bloomberg data.

Moreover, the acquisition increases Adobe’s total addressable market (TAM) by an estimated $13 billion.

Currently, Adobe carries a Zacks Rank #3.

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