Adobe’s stock (NASDAQ: ADBE) has lost roughly 35% YTD as compared to the 17% drop in the S&P500 index over the same period. Further, at its current price of $371 per share, it is trading 19% below its fair value of $456 – Trefis’ estimate for Adobe’s valuation. The technology giant topped the consensus estimates for revenues and earnings in the second quarter. It posted a 14% y-o-y increase in total revenues to $4.4 billion, driven by a 15% growth in digital media and a 17% rise in the digital experience segments. Notably, the digital media division contributes more than 70% of the top line. It benefited from a 12% increase in the creative cloud and a 27% jump in the document cloud categories. Further, the digital media ARR (annualized recurring revenue) grew from $12.15 billion to $12.95 billion at the end of Q2. Similarly, the digital experience segment profited from an 18% improvement in subscription-based revenues. Overall, the above growth translated into a 6% y-o-y increase in the net income to $1.18 billion. It was primarily due to higher expenses as a % of revenues. (Note – Adobe’s FY’21 ended on December 3, 2021. Q2 FY’22 refers to the quarter that ended on June 03, 2022)
The top-line increased 23% y-o-y to $15.8 billion in 2021, mainly due to strong growth in both the digital media and digital experience units. Further, the subscription-based revenues rose by 25% y-o-y. However, the growth has somewhat slowed in the first half of FY2022 – the top-line increased 12% y-o-y to $8.65 billion. In addition to this, the operating margin has declined from 37% to 36% over the same period. We expect the same trend to continue in the subsequent quarters.
Altogether, Adobe revenues are estimated to touch $17.6 billion in FY2022. Further, ADBE’s net income margin is likely to remain around 27% in the fiscal year. It will likely result in a net income of $4.8 billion and an annual GAAP EPS of $10.09. This coupled with a P/E multiple of just above 45x will lead to the valuation of $456.
|S&P 500 Return||0%||-17%||77%|
|Trefis Multi-Strategy Portfolio||0%||-16%||233%|
 Month-to-date and year-to-date as of 9/2/2022
 Cumulative total returns since the end of 2016