Adobe's well-publicized battle with Apple over Flash's future on the iPhone and iPad may have cast some doubt on the ubiquitous software, but the flap is way overblown, according to an analyst who is putting his money (or at least his buy rating) where his mouth is.
Jefferies analyst Ross MacMillan upgraded Adobe to a "buy" because the flap over Flash has drawn attention away from a more critical component: The Creative Suite 5 (CS5) buying cycle.
In a research note, MacMillan writes:
We continue to believe that the CS5 product cycle will be decent, driven by attractive features, some new product additions, a healthier end-market, some pent-up demand and perhaps a little tailwind from Windows 7 upgrades. If total cycle revenues with CS5 resemble total cycle CS3 revenues, as we believe, there is money to be made here. If we are wrong, we like the fact that the company's late CY09 cost reduction provides EPS support. We also think concerns over the future of Flash are overblown. While we don't think Flash will be the only rich media container for the web, neither do we think it will disappear. More importantly, Flash has almost zero bearing on revenues for Adobe over the next 18 months.
It's hard to argue with MacMillan on the Flash point. The big argument is that HTML5 is going to make Flash irrelevant. And HTML5 just might---years from now. This HTML5 vs. Flash debate, which according to early adopters you'd think was already decided, played out on the Enterprise Irregular email list recently. Among the key points:
- Flash is a runtime. HTML5 is a specification. Today, they aren't all that comparable.
- Enterprises and most of the content companies that build around Flash aren't going to suddenly drop support.
- Flash is more than videos---it's about rich clients on thin computing devices.
- The Flash ecosystem is rich and that attracts developers.
- It will take a decade for HTML5 to eradicate Flash if everything goes just perfectly (it won't). Keep in mind Web standards are messy and take time to develop.
Regarding that final point, MacMillan writes:
We believe the stock has come under additional pressure recently, due to concerns over the future of Flash. Apple's ongoing persistence to not include the Flash plug-in or run-time on the iPhone/ iPad coupled with Steve Job's comments regarding Flash is one thing. Google's YouTube Beta using HTML5 and the H.264 video codec (as opposed to Flash) is another. Adobe has retorted, with the CTO explaining Adobe's position and point of view on his blog. The bottom line for us is that we think it likely that Flash's share on the web will likely decline over time, but it is not going away. First, there is no agreed video tag for HTML5 today (with sparring tag technologies of H.264 and Theora supported by various camps). Second, HTML5 in its current specification does not support many of the features that Flash supports, such as audio streaming or games.
Strip away the concerns about Flash and you have a good old fashioned buying cycle to play, according to MacMillan. Instead of worrying about Flash fear, uncertainty and doubt it's more productive to follow the revenue of CS4 and the launch of Acrobat 10 in the second half.