Adobe’s stock (NASDAQ: ADBE) has gained 47% YTD as compared to the 15% rise in the S&P500 index over the same period. Further, ADBE stock is currently trading around $495, which is 16% above its fair value of $426 – Trefis’ estimate for Adobe’s valuation. The company outperformed the street expectations in the second quarter of FY2023 (FY Dec 4 – Dec 3), with revenues increasing 10% y-o-y to $4.82 billion. It was driven by a 10% growth in digital media and a 12% improvement in the digital experience unit. Notably, the company derives more than 70% of its revenues from the digital media division. It benefited from a 9% rise in the creative cloud category, followed by an 11% increase in the document cloud sub-segment. On the cost front, the operating margin decreased from 34.9% to 33.7% in the quarter, leading to a net income of $1.29 billion – up 10% y-o-y.
The company’s top line grew 10% y-o-y to $9.47 billion in the first two quarters of FY 2023. It was primarily driven by a 9% rise in digital media and an 11% increase in the digital experience divisions. However, the net income increased only 4% y-o-y over the same period, due to an unfavorable increase in the operating expenses.
Moving forward, the firm expects the third quarter revenues and earnings to remain between $4.83-$4.87 billion and $2.82-$2.88 (GAAP) respectively. Overall, Adobe’s revenues are estimated to touch $19.42 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 $5.19 billion and an annual GAAP EPS of $11.10. This coupled with a P/E multiple of just above 38x will lead to a valuation of $426.
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|S&P 500 Return||5%||15%||97%|
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 Month-to-date and year-to-date as of 6/20/2023
 Cumulative total returns since the end of 2016