Adobe Stock To Top The Street Expectations In Q1

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Adobe

Adobe (NASDAQ: ADBE) is scheduled to report its fiscal Q1 2023 results on Wednesday, March 15 (after market close). We expect Adobe to edge past the consensus estimates of revenues and earnings. The technology giant surpassed the street estimates in the last quarter, with total revenues improving 10% y-o-y to $4.53 billion. It was driven by a 10% rise in digital media and a 14% growth in the digital experience units. Notably, the digital media segment benefited from an 8% increase in the creative cloud, followed by a 16% rise in the document cloud sub-segment. We expect the first-quarter results to be on similar lines (Note – Adobe’s FY’22 ended on December 2, 2022. Q1 FY’23 refers to the quarter that ended on March 3, 2023).

Our forecast indicates that Adobe’s valuation is $386 per share, which is 19% above the current market price of just above $324. Our interactive dashboard analysis on Adobe’s Earnings Preview has more details. 

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(1) Revenues likely to top the consensus estimates

Adobe’s revenues grew 12% y-o-y to $17.61 billion in FY 2022. The growth was primarily driven by an 11% rise in digital media and a 14% increase in the digital experience divisions. Further, the subscription-based revenues improved by 12% y-o-y, contributing 93% of the top line.

  • The digital media segment benefited from a 10% y-o-y growth in the creative cloud and a 21% increase in the document cloud sub-segments. Further, the segment’s annualized recurring revenue (“ARR”) improved by 15% to $13.97 billion. We expect the same trend to continue in Q1 FY2023.
  • The digital experience revenues rose by 14% y-o-y to $3.3 billion in the year. We expect the Q1 results to be on similar lines.
  • Overall, we estimate Adobe’s revenues to touch $19.27 billion for FY 2023.

Trefis estimates Adobe’s fiscal Q1 2023 revenues to be around $4.65 billion, slightly above the $4.62 billion consensus estimate. 

(2) EPS to beat the consensus estimates

Adobe Q1 FY2023 adjusted earnings per share (Non-GAAP EPS) is expected to be $3.70 per Trefis analysis, which is 2% above the consensus estimate of $3.64. The net income marginally decreased to $4.76 billion in FY 2022, despite positive growth in revenues. It was primarily due to an unfavorable increase in sales & marketing and research & development expenses. We expect the net income margin to see improvement in first-quarter results. Overall, Adobe’s annual GAAP EPS is forecast to be around $11.00 in FY2023. 

(3) Stock price estimate is 19% higher than the current market price

We arrive at Adobe’s valuation, using an EPS estimate of around $11.00 and a P/E multiple of just above 35x in fiscal 2023. This translates into a price of $386, which is 19% above the current market price of around $324. 

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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 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 ADBE Return 0% -4% 215%
 S&P 500 Return -3% 0% 72%
 Trefis Multi-Strategy Portfolio -5% 2% 221%

[1] Month-to-date and year-to-date as of 3/14/2023
[2] Cumulative total returns since the end of 2016

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