Adobe (NASDAQ: ADBE) is scheduled to report its fiscal Q2 2022 results on Thursday, June 16 (after market close). We expect Adobe to edge past the consensus estimates of revenues and earnings. The technology giant posted better than expected results in the last quarter, with total revenues improving 9% y-o-y to $4.2 billion. It was driven by a 9% growth in digital media and a 13% rise in the digital experience divisions. Further, more than 90% of the ADBE’s revenues are subscription-based, which increased 10% y-o-y. The main reason behind the above growth was an increase in net new users. We expect the same trend to continue in the second quarter (Note – Adobe’s FY’21 ended on December 3, 2021. Q2 FY’22 refers to the quarter that ended on June 03, 2022).
Our forecast indicates that Adobe’s valuation is $533 per share, which is 35% above the current market price of just above $394. Our interactive dashboard analysis on Adobe’s Earnings Preview has more details.
(1) Revenues likely to top the consensus estimates
Adobe’s revenues increased 23% y-o-y to $15.8 billion in FY 2021. The growth was primarily due to a 25% rise in digital media and a 24% increase in the digital experience units.
- The digital media segment contributes close to 72% of the total revenues. It witnessed strong demand in 2021, with revenues increasing 25% y-o-y. Notably, digital media annualized recurring revenue (“ARR”) is the key metric to measure the performance of this unit, which improved 19% y-o-y. The same momentum continued in the first quarter of 2022, and we expect the second-quarter results to be on similar lines.
- The digital experience, which includes the Adobe experience cloud applications, services and platform, reported a 24% y-o-y growth in revenues to $3.9 billion. It was due to a 27% increase in subscription-based revenues and the acquisition of Workfront. Further, the segment posted a year-on-year growth of 13% in the first quarter of 2022. We expect the same momentum to follow in the second quarter.
- Overall, we forecast Adobe’s revenues to touch $18 billion for FY 2022.
Trefis estimates Adobe’s fiscal Q2 2022 revenues to be around $4.41 billion, 1% above the $4.34 billion consensus estimate. Moving forward, we expect the high demand for Adobe’s products to continue over the coming months, thanks to the current work-from-home (WFH) trend and higher digital engagement. Our dashboard on Adobe’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
(2) EPS is expected to marginally beat consensus estimates
Adobe Q2 FY2022 adjusted earnings per share (Non-GAAP EPS) is expected to be $3.40 per Trefis analysis, almost 3% above the consensus estimate of $3.31. Despite strong growth in the top line in FY2021, the net income decreased 8% to $4.8 billion. It was primarily due to a one-time net tax benefit received in 2020. On similar lines, the growth in the total revenues in the first quarter of 2022 was offset by a slight increase in expenses and higher provisions for income taxes. It resulted in a net income of around $1.3 billion – the same level as the previous year’s figure. We expect the second-quarter results to follow the same trend.
Moreover, we expect the net income margin to see a slight drop in FY2022, leading to a net income of $5.3 billion and annual GAAP EPS of $11.09.
(3) Stock price estimate is 35% higher than the current market price
We arrive at Adobe’s valuation, using an EPS estimate of around $11.09 and a P/E multiple of 48x in fiscal 2022. This translates into a price of $533, which is 35% above the current market price of around $394.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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