Is Adobe Stock Attractive At Current Levels?

Adobe’s stock (NASDAQ: ADBE) is down roughly 26% YTD as compared to the 6% drop in the S&P500 index over the same period. Notably, several high-growth technology stocks have taken a beating in 2022 after an illustrious bull run last year. ADBE stock is currently trading around $417, which is 22% below its fair value of $533 – Trefis’ estimate for Adobe’s valuation. The company posted better than expected results in the first quarter of FY2022 (FY ends on Friday closest to November 30), with revenues increasing 9% y-o-y to $4.2 billion. This growth was driven by a 9% increase in digital media and a 13% improvement in the digital experience segments. Further, subscription-based revenues, which contributed 93% of the top line, grew 10%. Overall, the net income was just below the $1.3 billion mark – at par with the previous year’s figure.

The company witnessed strong growth in 2021. Its total revenues jumped 23% y-o-y to $15.8 billion, primarily due to a 25% rise in digital media and a 24% increase in the digital experience segments. Notably, the digital media annualized recurring revenue (ARR) improved 19% y-o-y to $12.2 billion. The growth was led by a 25% improvement in the subscriptions based revenues, which contributed 92% of the top-line in the year. The key factors were – an increase in net new users thanks to the current work-from-home (WFH) trend, and higher digital engagement. Further, the firm completed the acquisition of Frame.io and Workfront in 2021. Despite the increase in revenues and higher-income before tax as a % of revenues, the net income decreased 8% y-o-y to $4.8 billion. This was due to the one-time benefit from income tax of $1.1 billion received in 2020. 

We expect the digital media and digital experience revenues to continue their growth trajectory in the subsequent quarters. Altogether, Adobe revenues are expected to touch $18 billion in FY2022. Further, ADBE’s net income margin is likely to see a slight drop in the year. It will likely result in a net income of $5.3 billion and an annual GAAP EPS of $11.09. This coupled with a P/E multiple of 48x will lead to the valuation of $533.

Here you’ll find our previous coverage of Adobe stock, where you can track our view over time.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 4/22/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates