Company Reports

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation. The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud but comes in lower cost and free versions. The 2023 introduction of Firefly marks an important artificial intelligence solution that should also attract new users. We think Adobe is properly focusing on bringing new users under its umbrella and believe that converting these users will become more important over time.

We are maintaining our fair value estimate of $610 per share after Adobe reported good first-quarter results, but offered perplexing guidance for the second quarter that is ultimately slightly disappointing. The problem with guidance is threefold in our opinion. First, management refused to simply reiterate its full-year outlook for net new annual recurring revenue, which it repeatedly said it “felt really good” about. Second, it implies the second half of the year will be even more back-end-loaded. Third, multiple moving parts made the outlook overly confusing. We think these factors are driving a steep after-hours selloff. However, given recent pricing actions that should roll out in the rest of the world, pending important product launches, and rapid generative artificial intelligence adoption, we are not making material changes to our model and think shares are back in the “attractive” category.

After a 15-month saga of claims and counterclaims with relevant oversight bodies, Adobe and Figma have agreed to terminate their $20 billion merger agreement. We have consistently viewed the acquisition as strategically strong and financially challenging, so our reaction to the news is similarly mixed. We now expect Adobe to invest resources and take the time to improve its XD solution and introduce key functionality throughout its portfolio, mainly to bring its applications to the web and introduce the ability to have multiple users simultaneously editing a single work product. Adobe’s development team is excellent, so we view this as a matter of time without material margin pressure. From a financial perspective, we think investors will be pleased that Adobe will not be issuing approximately $10 billion in new shares and utilizing $10 billion in cash that could otherwise be used to buy back shares. There is no Figma impact contemplated in our model, so no changes are required. Our fair value estimate remains $610 per share, leaving the stock fairly valued, in our view.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation. The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud but comes in lower cost and free versions. The 2023 introduction of Firefly marks an important artificial intelligence solution that should also attract new users. We think Adobe is properly focusing on bringing new users under its umbrella and believe that converting these users will become more important over time.

Wide-moat Adobe reported fourth-quarter results, including revenue and non-GAAP EPS that exceeded both the top end of guidance and our expectations. On the surface, the outlook for fiscal 2024 is slightly below Street expectations. We attribute this to both conservatism and an imperfect understanding of prior guidance around when the impact of 2023 pricing increases will be felt, which skews more to 2025 than expected. We modestly lowered our near-term estimates based on guidance, while also modestly raising our medium-term growth assumptions, and advanced our model for the year-end. In turn, we increased our fair value estimate to $610 from $510 previously. Shares are selling off in the aftermarket, which we assume is based on the outlook and not surprising given the strong run the stock has had. We view shares as approximately fairly valued.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation. The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud but comes in lower cost and free versions. The 2023 introduction of Firefly marks an important artificial intelligence solution that should also attract new users. We think Adobe is properly focusing on bringing new users under its umbrella and believe that converting these users will become more important over time.

Wide-moat Adobe hosted its analyst day, which focused on innovation. With no new financial disclosures or an updated framework for guidance, we are maintaining our $510 per share fair value estimate and see shares as fairly valued after strong performance throughout 2023. Still, the company announced a bevy of new products and general releases of previously announced solutions, as well as previewing some pending innovations. From a product standpoint, we came away impressed. We think the company’s leadership position in serving the creative markets remains intact and we are incrementally confident in our long-term forecast.

Wide-moat Adobe reported good third-quarter results, including revenue and non-GAAP EPS that exceeded the top end of guidance and our expectations along with it. We characterize management’s fourth-quarter guidance as in line with investor expectations, which given recent strength and with Firefly AI now generating revenue, could be interpreted as a slight disappointment. We think this mentality mainly misses the mark given such a short-term focus. Further, management will provide fiscal 2024 targets within its fourth-quarter results in December so in-line guidance for one quarter matters less to us here. To begin to accommodate recently announced price increases in the area of 10% for various Creative Cloud and single app instances, we are modestly raising our growth estimates over the next several years. Our fair value estimate therefore increases to $510, from $485 previously, although after a strong run, we see shares as fairly valued.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud, but comes in lower-cost and free versions. We think the company is properly focusing on bringing new users under Adobe’s umbrella and believe that converting these users will become more important over time.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud, but comes in lower-cost and free versions. We think the company is properly focusing on bringing new users under Adobe’s umbrella and believe that converting these users will become more important over time.

Wide-moat Adobe reported an excellent second quarter, including revenue and non-GAAP EPS that exceeded our expectations as well as the top end of guidance. The firm also raised its full-year outlook for total revenue and non-GAAP EPS, as management anticipates an uptick in both revenue and annual recurring revenue, or ARR, in both Creative and Document Cloud from previous estimates. The impressive results, coupled with our belief that management is reinforcing its leadership position with Firefly AI, lead to slight increases in our assumption for both margins and revenue over the intermediate term, which result in our fair value estimate increasing to $485 per share, from $425 previously. Despite this increase, we view shares as fairly valued.

Adobe hosted its Summit customer experience event accompanied by a tome of press releases and capped it off with a Q&A session for the investor community. In broad strokes, the firm announced an array of innovations to both the Adobe Experience Manager and Adobe Experience Cloud, highlighted by its new Firefly family of generative artificial intelligence, or AI, models. After viewing some short demos of product capabilities, we came away impressed and believe that wide-moat Adobe has widened its lead in both content creation and customer experience. Unfortunately for Adobe, we think some of the other announcements from today’s event will be overshadowed by Firefly. We are maintaining our fair value estimate of $425 per share.

Wide-moat Adobe reported good first-quarter results, including revenue and non-GAAP EPS that exceeded the top end of guidance. The firm also modestly raised its full-year outlook for net new digital annual recurring revenue, or ARR, and non-GAAP EPS, which is a rare show of confidence in this market. Currency pressure is easing, which helped results relative to expectations, while overall demand remains resilient. Management also disclosed it has no material ties to Silicon Valley Bank. All things considered, results look good to us. The company continues to work with regulators regarding the Figma acquisition and still believes the deal is on track to close this year, even if we sense lower confidence. Given modest guidance revisions and correspondingly minute changes to our model, we are maintaining our fair value estimate of $425 per share and view the stock as attractive for long-term investors.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud, but comes in lower-cost and free versions. We think the company is properly focusing on bringing new users under Adobe’s umbrella and believe that converting these users will become more important over time.

Wide-moat Adobe reported solid fourth-quarter results, including revenue and non-GAAP operating profits that were basically in line with our model. The firm also reiterated its complete outlook for full-year 2023. Overall, we consider this a win for Adobe and investors, although with the exception of easing currency pressure, we are not ready to assume the rest of our software coverage will follow a similar favorable pattern next month. Management also noted the Figma acquisition is under review by various regulatory bodies around the world and is progressing as expected. We continue to believe the deal closes in fiscal 2023. Given no changes to guidance and a relatively stable environment, we are maintaining our fair value estimate of $425 and view shares as attractive for long-term investors, although we do see heightened sensitivity to a possible slowdown within the advertising arena in the event of a possible recession in 2023.

Adobe hosted its analyst day, which included preliminary guidance for fiscal 2023 that was below our model. Macroeconomic conditions, including persistently high negative foreign currency impacts, are behind the light outlook. To that end, the company expects currency to drive its annually recurring revenue book down by $700 million when it is revalued at the end of its fiscal year in November. Along with some other minor adjustments, these factors drive our fair value estimate down to $425 per share, from $450. The company also reiterated its guidance for the fourth quarter, which we take as a mild positive surprise given the 2023 guidance. Overall, we think the event underscored the company’s leadership position, leaving us comfortable with our wide moat rating.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud, which is now offered via a subscription model. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The benefits from software as a service are well known in that it offers significantly improved revenue visibility and the elimination of piracy for the company, and a much lower cost hurdle to overcome ($1,000 or more up-front, versus plans as low as $10 per month) and a solution that is regularly updated with new features for users.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud, which is now offered via a subscription model. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The benefits from software as a service are well known in that it offers significantly improved revenue visibility and the elimination of piracy for the company, and a much lower cost hurdle to overcome ($1,000 or more up-front, versus plans as low as $10 per month) and a solution that is regularly updated with new features for users.

Adobe’s announcement that it was acquiring Figma for $20 billion drowned out the firm’s solid third-quarter results and mixed fourth-quarter outlook. The purchase price will be paid split about evenly between stock and cash, with the deal expected to close in 2023 pending regulatory and shareholder approval. Shares were down sharply on the day, we assume, because of the rich multiple of approximately 50 times annualized recurring revenue, or ARR, wide-moat Adobe is paying and the unusual timing of the deal. We view the acquisition as strategically excellent but we are concerned about both the timing and very high valuation. We lowered our forecast slightly and then massaged management’s guidance parameters surrounding the Figma acquisition into our model, which, combined, drive our fair value estimate to $450, from $500 previously. We view shares as attractive but see heightened uncertainty as the environment continues to deteriorate and the Figma acquisition muddies the financial picture further.

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud, which is now offered via a subscription model. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The benefits from software as a service are well known in that it offers significantly improved revenue visibility and the elimination of piracy for the company, and a much lower cost hurdle to overcome ($1,000 or more up-front, versus plans as low as $10 per month) and a solution that is regularly updated with new features for users.