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Stock Analyst Update

Adobe Delivers Solid Results; FVE Up to $500

Wide-moat Adobe reported strong fourth-quarter results, including upside to consensus for both revenue and non-GAAP EPS, and provided quarterly guidance that was ahead of Street expectations

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Wide-moat Adobe (ADBE) reported strong fourth-quarter results, including upside to consensus for both revenue and non-GAAP EPS, and provided quarterly guidance that was ahead of Street expectations, but included an extra week along with the Workfront acquisition. Normalizing for these items, we believe the full-year revenue outlook is in line, while EPS is slightly better than expectations. In conjunction with its earnings release, Adobe also provided its annual investor day presentation, which contained some incremental data points but no big surprises. The company did authorize a new $15 billion share buyback plan. New customer engagement levels remained robust and activity on adobe.com remains elevated as a result of the extended remote work environment. We think results and the investor day combine to support our investment case that Adobe will continue to dominate the creative segment, and its well-rounded portfolio, including Magento and Marketo, position the firm as a digital marketing leader. Given results and guidance, in conjunction with advancing our DCF a year, we have included higher growth throughout our forecast and are therefore raising our fair value estimate to $500 per share, from $400. As such, we see shares trading at a modest discount to our fair value.

Fourth-quarter revenue grew 14% year over year to $3.424 billion, compared with CapIQ consensus of $3.365 billion. Digital Media was $45 million ahead of our model and drove most of the upside. Advertising was moved from Digital Experience to Publishing, so direct compares are challenging, but we calculate that both of these segments also ahead of our model. Net new digital ARR was $548 million, versus guidance of $540 million, a slowdown from much stronger upside recently but still solid. Document Cloud (within Digital Media) was strong in the quarter and we note that Adobe Sign was more directly discussed this year beyond smaller mentions in the past. Not surprisingly, Magento was also strong.

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Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.