RiverPark Funds is bullish on Adobe Systems Incorporated (NASDAQ:ADBE) as the fund believes that the company could significantly benefit from the continued global expansion of the market for digital advertising solutions globally. In this article, we’re going to look at the comments made by RiverPark about Adobe in its Long/Short Opportunity Fund Q4 Investor Letter.
So, here is everything that RiverPark said about digital designing software maker:
Adobe shares also performed well this period as the company reported another strong quarter of better than expected results. ADBE posted 25% revenue growth with strong performance across both of its core segments: Digital Media revenue increased 29% year-over-year and Digital Marketing revenue grew a better-than-expected 18%. Expenses were well controlled, allowing operating margins to expand 350 bps to an impressive 40%, which generated EPS growth of 40% year-over-year.
We remain bullish on Adobe’s growth opportunities as the market for digital advertising solutions globally continues to expand and ADBE, through its ability to raise prices, convert existing customers to its subscription Cloud solutions, and capture new customers via innovative new product offerings, takes market share. Management recently cited the company’s total available market as being in excess of $83 billion by 2020 (a sizeable opportunity for the $7 billion in revenue Adobe) and the company’s execution and expense control remain best in class in its industry.
Adobe Systems Incorporated (NASDAQ:ADBE) shares have been performing well, with the stock gaining more than 15% since the beginning of the year. Over the last 12 months, the share price has jumped more than 72%.
At the end of the last month, the maker of digital products for media and marketing announced raising its earnings guidance for fiscal 2018, adding the expected impact of the recently-enacted Tax Cuts and Jobs Act. For fiscal 2018 beginning Dec. 2, Adobe expects an EPS of $6.20, versus $5.50 announced previously. For its fiscal first quarter, the company anticipates $1.43 per share, versus the previous target of $1.27.
ADBE is a popular stock among the hedge funds covered by us at Insider Monkey. There were 65 funds in our database as of the end of September that held shares of Adobe Systems Incorporated (NASDAQ:ADBE). During the fourth quarter of 2017, Junto Capital Management and Lone Pine Capital increased their ownership in Adobe, according to the latest filings.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
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