Key Stats for Adobe Systems Incorporated
Oh how designers hate paying Adobe. So are they doing something right by shareholders?
| Ticker | ADBE |
|---|---|
| Sector | Application Software |
| Latest price | $116.13 |
| Value | $57,377M |
| Daily vol | $252M |
| Date | 09 February 2017 |
Useful Links
- Latest news from Google Finance and Yahoo Finance
- Latest results from SEC Edgar
- Website: http://www.adobe.com/
Description
Adobe Systems is a software business and it operates through three segments:
- Its Digital Media segment (67% of sales) provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content.
- Its Digital Marketing segment (30%) provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized.
- Its Print and Publishing segment (3%) addresses market opportunities ranging from the diverse authoring and publishing needs of technical and business publishing to its legacy type and original equipment manufacturer (OEM) printing businesses.
Recent financials
Oddly it's year closed at the end of Nov, so we already have the 2016 figures. And the figures look nice! Massive jump in sales and profits.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $5.9bn | $4.8bn | $4.2bn | $4.1bn | $4.4bn |
| EPS | $2.32 | $1.24 | $0.53 | $0.56 | $1.66 |
In fact it's had a pretty good 2 years. But let's not forget, that ADBE got a boost from its $800m purchase of Fotolia in 2015. And next year's going to benefit from the $550m purchase of TubeMogul.
One of the key factors is how they've massively turned from selling product / software to becoming a SaaS / subscription business.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| % subscriptions | 78% | 67% | 50% | 28% | 15% |
Now that's a fast re-invention. ORCL / MCFT / SAP eat your heart out.
Competition
It's hard to find a longer competitor section in a 10-K, so let's summarise the competitors names by division
- Digital Media: Apple, Autodesk, Avid, Corel, Microsoft, Quark, Getty Images, Shutterstock
- Digital Marketing: Google, IBM, Marketo, Oracle, salesforce.com, SAP, SAS, Yahoo!, Verizon, Teradata
- Print & Publishing: they didn't list any.
No surprises there, eh?
In terms of figures it's margins are impressive and returns are reasonable. Though I'm surprised that software businesses have low double digit returns.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Adobe Systems Incorporated | $5,854M | 31% | 16% |
| Autodesk, Inc. | $2,201M | -6% | -32% |
| Citrix Systems, Inc. | $3,418M | 29% | 23% |
| International Business Machines Corp. | $79,918M | 20% | 73% |
| Microsoft Corporation | $85,688M | 33% | 23% |
| Oracle Corporation | $37,236M | 42% | 19% |
| salesforce.com, inc. | $7,907M | 8% | 4% |
| SAP SE (ADR) | $23,600M | 31% | 15% |
Have to admit I am really curious about ADBE v CRM! How come CRM's got such low margins? Aren't both SaaS darlings?
Cash / Debt?
Adobe has $2,863M of net cash. That is the equivalent of 5% of the market value of Adobe. So clearly there's plenty of resources to go and do more deals!
Wall Street thinks?
The professionals on Wall Street have a $123.16 for Adobe Systems Incorporated and their recommendation to clients is Buy. That implies an upside of 6% to their target.
Valuation
Clearly we are paying for growth. The mega cap software guys are trading at 20x, and the sector darling, CRM is in the stratosphere.
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| ADBE.O | $57,377M | 30x | 21% | 0% | 3% |
| ADSK.O | $18,457M | -ve | n/a | 0% | n/a |
| CTXS.O | $12,117M | 17x | 12% | 0% | 7% |
| IBM | $167,512M | 13x | 3% | 3% | 13% |
| MSFT.O | $489,462M | 21x | 9% | 2% | 7% |
| ORCL.K | $164,176M | 16x | 8% | 1% | 8% |
| CRM | $56,224M | 82x | 29% | 0% | 1% |
| SAP | $112,796M | 20x | 8% | 2% | 5% |
ADBE looks like it's prices as a quality stock, but that just may be justified, and more.
Dividends
Adobe Systems Incorporated is not forecast to pay a dividend this year. They prefer doing buyback. In fact they bought back over $1bn last year and have authorisation to buy back up to $2bn this year.
Catalysts
In the last 3 months the stock price has moved by 12% that compares with a change in the earnings forecasts of 28%. So, it's fair to say it's got "cheaper". Currently it's on 30x and over the last 2 years the valuation's ranged from 27 to 45x forecast earnings.
On the management team's latest call with Wall Street brokers, they said
Entering FY ‘17, we have great momentum and continue to see strength across our three cloud businesses. We are excited about our large addressable markets and are uniquely positioned to drive strong top line and bottom line growth.
Which translates into 20%+ revenue growth this year. WOW!
So here's what the forecasts look like
| Metric | 2016A | 2017E | 2018E |
|---|---|---|---|
| Revenue | $5.9bn | $7.1bn | $8.5bn |
| EPS | $2.32 | $3.81 | $4.80 |
It's hard not to like that outlook. And ADBE is forecast to modestly accelerate it top line growth. So will they deliver? Remember this is a stock that's come in near the top or higher earnings guidance every quarter for the last 10 quarters.
Now it's rare I like a business on 30x earnings, but it's hard not to feel like ADBE's got a strong moat, captive client base and pricing power. Okay, it's not cheap, but it does look quality.
What's the risk? Anyone?
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted February 09, 2017 at 05:33PM by shane_stockflare http://ift.tt/2kTYzWz
