Adobe Posts Mixed Q4; Raise FVE to $630

In conjunction with its analyst day, wide-moat Adobe ADBE reported mixed fourth-quarter results, including revenue upside, messy billings, modest EPS upside, and light guidance. However, we also believe the outlook is better than it appears. After all, the 2022 outlook is just 1% below FactSet consensus, with pressure driven by having one less week than 2021 and foreign exchange combining to add a 300 basis point headwind to growth. After factoring guidance and results along with rolling our DCF forward, we raise our fair value estimate to $630 per share from $610. We thought investors were a bit overexcited about the stock a month ago when the shares were $688 and see today's 10% drop after the 8% drop in the month leading up to today skewing overly pessimistic. We see Adobe's dominance as unencumbered and an expanding portfolio poised to attack a growing market as signs that shares are now undervalued.

Fourth-quarter revenue grew 20% year over year to $4.110 billion, versus guidance of $4.070 billion and FactSet consensus of $4.073 billion. Billings came in at $571 million, compared to guidance of $550 million excluding Frame.io, although the acquisition contributed $29 million, suggesting Adobe missed on this key metric. We think this is a blip rather than a problem. Digital media revenue grew 21% year over year while digital experience, or DX, revenue grew 23% year over year--both being modestly ahead of our own expectations. Adobe noted solid demand throughout the quarter from individuals, SMB, and enterprise customers, but did not see a typical two-week surge in e-commerce demand, noting that this was consistent with Adobe's Digital Economy Index. We have seen similar trends in some of our other companies. Frame.io saw good traction and Workfront helped drive larger deal sizes in the DX segment. We remain impressed by Adobe’s ability to drive new users in digital media and we are encouraged by solid results in digital experience, which we think continue in 2022.

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