Adobe Stock Shines in Q1, but Can It Continue to Outperform?

Adobe Stock

Despite posting better-than-expected results for the first quarter of FY2023, Adobe stock (ADBE:NSD) has lost 1% YTD, compared to the 1% rise in the S&P500 index over the same period. Currently trading around $334, the stock is undervalued by 14% according to Trefis’ estimate of $388.

The first quarter saw a 9% year-over-year increase in revenues to $4.66 billion, with digital media and digital experience segments rising 9% and 12% respectively. Within the digital media business, the creative cloud and document cloud sub-categories saw an 8% and 13% year-over-year improvement, while subscription-based revenues rose 10% to $4.37 billion. However, operating expenses as a percentage of revenues increased, leading to a marginal drop in net income to $1.25 billion.

In the fiscal year 2022, Adobe’s top line grew 12% year-over-year to $17.61 billion, driven by 11% and 14% increases in digital media and digital experience divisions respectively. Total digital media annualized recurring revenue also saw a 15% year-over-year increase to $13.97 billion. Despite positive revenue growth, the net income slightly decreased to $4.76 billion due to higher operating expenses.

Looking ahead, Adobe stock forecasts second-quarter revenues and earnings to remain between $4.75 billion and $4.78 billion, and $2.65 and $2.70 respectively. For FY2023, revenues are forecast to reach $19.27 billion, with the net income margin remaining around the same level as the previous year. This is expected to result in a net income of $5.14 billion and an annual GAAP EPS of $11.05, coupled with a P/E multiple of just above 35x leading to a valuation of $388.

 

Company Profile:

Adobe Inc., together with its subsidiaries, operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising.

The company was formerly known as Adobe Systems Incorporated and changed its name to Adobe Inc. in October 2018. Adobe Inc. was founded in 1982 and is headquartered in San Jose, California.

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