Adobe Stock Topped The Consensus In Q1, What’s Next?

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ADBE: Adobe logo
ADBE
Adobe

Adobe’s stock (NASDAQ: ADBE) has lost 1% YTD as compared to the 1% rise in the S&P500 index over the same period. Further, ADBE stock is currently trading around $334, which is 14% below its fair value of $388 – Trefis’ estimate for Adobe’s valuationThe company posted better-than-expected results in the first quarter of FY2023 (Dec 3, 2022 – March 3, 2023), with revenues increasing 9% y-o-y to $4.66 billion. It was driven by a 9% increase in digital media, followed by a 12% rise in the digital experience segments. The digital media business benefited from an 8% y-o-y improvement in the creative cloud and a 13% rise in the document cloud sub-categories. Notably, the subscription-based revenues increased 10% y-o-y to $4.37 billion. On the cost front, the operating expenses as a % of revenues witnessed an unfavorable increase in the quarter, leading to a marginal drop in the net income to $1.25 billion.

The company’s top line grew 12% y-o-y to $17.61 billion in FY 2022. It was primarily driven by an 11% rise in digital media and a 14% increase in the digital experience divisions. Further, total digital media annualized recurring revenue (“ARR”) increased 15% y-o-y to $13.97 billion at the end of fiscal 2022. Despite positive growth in revenues, the net income slightly decreased to $4.76 billion. This was due to higher operating expenses as a % of revenues. 

Moving forward, the firm expects the second quarter revenues and earnings to remain between $4.75-$4.78 billion and $2.65-$2.70 respectively. Overall, Adobe’s revenues are forecast to touch $19.27 billion in FY2023. Further, ADBE’s net income margin is likely to remain around the same level as the last year. It will likely result in a net income of $5.14 billion and an annual GAAP EPS of $11.05. This coupled with a P/E multiple of just above 35x will lead to a valuation of $388.

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 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 ADBE Return 3% -1% 224%
 S&P 500 Return -2% 1% 74%
 Trefis Multi-Strategy Portfolio -4% 3% 224%
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[1] Month-to-date and year-to-date as of 3/16/2023
[2] Cumulative total returns since the end of 2016

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