Intrinsic value of Adobe Systems - ADBE

Previous Close

$197.84

  Intrinsic Value

$336.26

stock screener

  Rating & Target

str. buy

+70%

Previous close

$197.84

 
Intrinsic value

$336.26

 
Up/down potential

+70%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ADBE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  24.74
  24.80
  22.82
  21.04
  19.43
  17.99
  16.69
  15.52
  14.47
  13.52
  12.67
  11.90
  11.21
  10.59
  10.03
  9.53
  9.08
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
Revenue, $m
  7,302
  9,113
  11,192
  13,547
  16,180
  19,091
  22,277
  25,735
  29,459
  33,443
  37,681
  42,166
  46,895
  51,862
  57,065
  62,503
  68,176
  74,086
  80,237
  86,633
  93,282
  100,192
  107,372
  114,834
  122,591
  130,657
  139,047
  147,778
  156,869
  166,337
  176,206
Variable operating expenses, $m
 
  4,713
  5,655
  6,723
  7,916
  9,235
  10,680
  12,247
  13,935
  15,741
  17,662
  19,113
  21,256
  23,507
  25,866
  28,331
  30,902
  33,581
  36,369
  39,268
  42,282
  45,414
  48,668
  52,051
  55,567
  59,223
  63,026
  66,983
  71,104
  75,396
  79,868
Fixed operating expenses, $m
 
  1,303
  1,335
  1,369
  1,403
  1,438
  1,474
  1,511
  1,549
  1,587
  1,627
  1,668
  1,709
  1,752
  1,796
  1,841
  1,887
  1,934
  1,982
  2,032
  2,083
  2,135
  2,188
  2,243
  2,299
  2,356
  2,415
  2,476
  2,538
  2,601
  2,666
Total operating expenses, $m
  5,133
  6,016
  6,990
  8,092
  9,319
  10,673
  12,154
  13,758
  15,484
  17,328
  19,289
  20,781
  22,965
  25,259
  27,662
  30,172
  32,789
  35,515
  38,351
  41,300
  44,365
  47,549
  50,856
  54,294
  57,866
  61,579
  65,441
  69,459
  73,642
  77,997
  82,534
Operating income, $m
  2,168
  3,097
  4,202
  5,456
  6,861
  8,417
  10,124
  11,977
  13,976
  16,115
  18,392
  21,386
  23,929
  26,602
  29,403
  32,332
  35,387
  38,571
  41,886
  45,333
  48,918
  52,643
  56,516
  60,541
  64,726
  69,078
  73,606
  78,319
  83,227
  88,341
  93,671
EBITDA, $m
  2,494
  3,707
  4,817
  6,078
  7,491
  9,057
  10,772
  12,636
  14,646
  16,797
  19,087
  21,512
  24,070
  26,757
  29,574
  32,518
  35,591
  38,793
  42,126
  45,592
  49,197
  52,943
  56,837
  60,884
  65,092
  69,468
  74,022
  78,761
  83,696
  88,838
  94,198
Interest expense (income), $m
  0
  66
  118
  179
  248
  324
  409
  502
  602
  711
  827
  950
  1,081
  1,218
  1,363
  1,514
  1,673
  1,838
  2,010
  2,189
  2,375
  2,569
  2,770
  2,979
  3,196
  3,422
  3,657
  3,901
  4,155
  4,420
  4,695
Earnings before tax, $m
  2,138
  3,031
  4,083
  5,277
  6,613
  8,093
  9,715
  11,476
  13,373
  15,404
  17,565
  20,436
  22,849
  25,384
  28,040
  30,817
  33,715
  36,733
  39,876
  43,144
  46,543
  50,075
  53,746
  57,562
  61,529
  65,656
  69,949
  74,418
  79,072
  83,921
  88,976
Tax expense, $m
  444
  819
  1,102
  1,425
  1,786
  2,185
  2,623
  3,098
  3,611
  4,159
  4,743
  5,518
  6,169
  6,854
  7,571
  8,321
  9,103
  9,918
  10,766
  11,649
  12,566
  13,520
  14,511
  15,542
  16,613
  17,727
  18,886
  20,093
  21,350
  22,659
  24,023
Net income, $m
  1,694
  2,213
  2,981
  3,852
  4,828
  5,908
  7,092
  8,377
  9,762
  11,245
  12,823
  14,918
  16,680
  18,530
  20,469
  22,497
  24,612
  26,815
  29,109
  31,495
  33,976
  36,554
  39,234
  42,020
  44,917
  47,929
  51,063
  54,325
  57,723
  61,262
  64,952

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,820
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  14,536
  10,875
  13,356
  16,166
  19,308
  22,781
  26,584
  30,710
  35,154
  39,908
  44,965
  50,318
  55,960
  61,887
  68,097
  74,586
  81,356
  88,408
  95,748
  103,381
  111,315
  119,561
  128,129
  137,034
  146,290
  155,915
  165,927
  176,346
  187,194
  198,493
  210,269
Adjusted assets (=assets-cash), $m
  8,716
  10,875
  13,356
  16,166
  19,308
  22,781
  26,584
  30,710
  35,154
  39,908
  44,965
  50,318
  55,960
  61,887
  68,097
  74,586
  81,356
  88,408
  95,748
  103,381
  111,315
  119,561
  128,129
  137,034
  146,290
  155,915
  165,927
  176,346
  187,194
  198,493
  210,269
Revenue / Adjusted assets
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
Average production assets, $m
  400
  501
  616
  745
  890
  1,050
  1,225
  1,415
  1,620
  1,839
  2,072
  2,319
  2,579
  2,852
  3,139
  3,438
  3,750
  4,075
  4,413
  4,765
  5,131
  5,511
  5,905
  6,316
  6,743
  7,186
  7,648
  8,128
  8,628
  9,149
  9,691
Working capital, $m
  3,721
  -2,615
  -3,212
  -3,888
  -4,644
  -5,479
  -6,394
  -7,386
  -8,455
  -9,598
  -10,814
  -12,102
  -13,459
  -14,884
  -16,378
  -17,938
  -19,567
  -21,263
  -23,028
  -24,864
  -26,772
  -28,755
  -30,816
  -32,957
  -35,184
  -37,499
  -39,906
  -42,412
  -45,021
  -47,739
  -50,571
Total debt, $m
  1,881
  3,385
  5,114
  7,073
  9,263
  11,684
  14,334
  17,210
  20,308
  23,621
  27,146
  30,876
  34,809
  38,941
  43,268
  47,791
  52,510
  57,426
  62,542
  67,862
  73,392
  79,139
  85,111
  91,318
  97,769
  104,478
  111,456
  118,718
  126,279
  134,155
  142,363
Total liabilities, $m
  6,076
  7,580
  9,309
  11,268
  13,458
  15,879
  18,529
  21,405
  24,503
  27,816
  31,341
  35,071
  39,004
  43,136
  47,463
  51,986
  56,705
  61,621
  66,737
  72,057
  77,587
  83,334
  89,306
  95,513
  101,964
  108,673
  115,651
  122,913
  130,474
  138,350
  146,558
Total equity, $m
  8,460
  3,295
  4,047
  4,898
  5,850
  6,903
  8,055
  9,305
  10,652
  12,092
  13,624
  15,246
  16,956
  18,752
  20,633
  22,600
  24,651
  26,788
  29,012
  31,324
  33,729
  36,227
  38,823
  41,521
  44,326
  47,242
  50,276
  53,433
  56,720
  60,144
  63,712
Total liabilities and equity, $m
  14,536
  10,875
  13,356
  16,166
  19,308
  22,782
  26,584
  30,710
  35,155
  39,908
  44,965
  50,317
  55,960
  61,888
  68,096
  74,586
  81,356
  88,409
  95,749
  103,381
  111,316
  119,561
  128,129
  137,034
  146,290
  155,915
  165,927
  176,346
  187,194
  198,494
  210,270
Debt-to-equity ratio
  0.222
  1.030
  1.260
  1.440
  1.580
  1.690
  1.780
  1.850
  1.910
  1.950
  1.990
  2.030
  2.050
  2.080
  2.100
  2.110
  2.130
  2.140
  2.160
  2.170
  2.180
  2.180
  2.190
  2.200
  2.210
  2.210
  2.220
  2.220
  2.230
  2.230
  2.230
Adjusted equity ratio
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,694
  2,213
  2,981
  3,852
  4,828
  5,908
  7,092
  8,377
  9,762
  11,245
  12,823
  14,918
  16,680
  18,530
  20,469
  22,497
  24,612
  26,815
  29,109
  31,495
  33,976
  36,554
  39,234
  42,020
  44,917
  47,929
  51,063
  54,325
  57,723
  61,262
  64,952
Depreciation, amort., depletion, $m
  326
  609
  616
  623
  631
  639
  649
  659
  670
  682
  695
  126
  140
  155
  171
  187
  204
  221
  240
  259
  279
  299
  321
  343
  366
  391
  416
  442
  469
  497
  527
Funds from operations, $m
  3,360
  2,822
  3,596
  4,475
  5,458
  6,547
  7,740
  9,036
  10,433
  11,927
  13,518
  15,044
  16,820
  18,685
  20,640
  22,683
  24,815
  27,037
  29,349
  31,754
  34,255
  36,854
  39,555
  42,363
  45,283
  48,319
  51,479
  54,767
  58,192
  61,760
  65,479
Change in working capital, $m
  447
  -520
  -597
  -676
  -756
  -835
  -915
  -992
  -1,069
  -1,143
  -1,216
  -1,287
  -1,357
  -1,426
  -1,493
  -1,561
  -1,628
  -1,696
  -1,765
  -1,836
  -1,908
  -1,983
  -2,061
  -2,142
  -2,226
  -2,315
  -2,408
  -2,506
  -2,609
  -2,718
  -2,832
Cash from operations, $m
  2,913
  3,342
  4,193
  5,150
  6,214
  7,383
  8,655
  10,029
  11,501
  13,071
  14,734
  16,332
  18,177
  20,111
  22,133
  24,244
  26,444
  28,733
  31,114
  33,590
  36,163
  38,837
  41,616
  44,505
  47,509
  50,634
  53,887
  57,273
  60,801
  64,477
  68,311
Maintenance CAPEX, $m
  0
  -22
  -27
  -33
  -40
  -48
  -57
  -67
  -77
  -88
  -100
  -113
  -126
  -140
  -155
  -171
  -187
  -204
  -221
  -240
  -259
  -279
  -299
  -321
  -343
  -366
  -391
  -416
  -442
  -469
  -497
New CAPEX, $m
  -178
  -101
  -114
  -130
  -145
  -160
  -175
  -190
  -205
  -219
  -233
  -247
  -260
  -273
  -286
  -299
  -312
  -325
  -338
  -352
  -366
  -380
  -395
  -410
  -427
  -444
  -461
  -480
  -500
  -521
  -543
Cash from investing activities, $m
  -443
  -123
  -141
  -163
  -185
  -208
  -232
  -257
  -282
  -307
  -333
  -360
  -386
  -413
  -441
  -470
  -499
  -529
  -559
  -592
  -625
  -659
  -694
  -731
  -770
  -810
  -852
  -896
  -942
  -990
  -1,040
Free cash flow, $m
  2,470
  3,219
  4,052
  4,988
  6,029
  7,174
  8,423
  9,772
  11,220
  12,763
  14,401
  15,972
  17,791
  19,698
  21,692
  23,774
  25,945
  28,204
  30,555
  32,998
  35,538
  38,178
  40,922
  43,774
  46,739
  49,824
  53,035
  56,377
  59,859
  63,488
  67,271
Issuance/(repayment) of debt, $m
  -2
  1,504
  1,730
  1,958
  2,190
  2,421
  2,650
  2,876
  3,097
  3,314
  3,525
  3,731
  3,933
  4,131
  4,328
  4,523
  4,719
  4,916
  5,116
  5,320
  5,530
  5,747
  5,972
  6,207
  6,452
  6,709
  6,978
  7,262
  7,561
  7,876
  8,208
Issuance/(repurchase) of shares, $m
  -1,100
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,184
  1,504
  1,730
  1,958
  2,190
  2,421
  2,650
  2,876
  3,097
  3,314
  3,525
  3,731
  3,933
  4,131
  4,328
  4,523
  4,719
  4,916
  5,116
  5,320
  5,530
  5,747
  5,972
  6,207
  6,452
  6,709
  6,978
  7,262
  7,561
  7,876
  8,208
Total cash flow (excl. dividends), $m
  1,295
  4,723
  5,781
  6,946
  8,218
  9,595
  11,073
  12,648
  14,317
  16,077
  17,925
  19,703
  21,723
  23,829
  26,020
  28,297
  30,663
  33,120
  35,671
  38,319
  41,069
  43,925
  46,894
  49,980
  53,191
  56,533
  60,013
  63,639
  67,420
  71,363
  75,479
Retained Cash Flow (-), $m
  -1,035
  -655
  -752
  -851
  -952
  -1,053
  -1,152
  -1,250
  -1,346
  -1,440
  -1,532
  -1,622
  -1,710
  -1,796
  -1,881
  -1,966
  -2,051
  -2,137
  -2,224
  -2,313
  -2,404
  -2,498
  -2,596
  -2,698
  -2,805
  -2,916
  -3,034
  -3,157
  -3,287
  -3,424
  -3,568
Prev. year cash balance distribution, $m
 
  5,820
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  9,888
  5,029
  6,095
  7,266
  8,543
  9,921
  11,398
  12,971
  14,637
  16,393
  18,081
  20,014
  22,033
  24,139
  26,331
  28,612
  30,983
  33,447
  36,006
  38,665
  41,427
  44,298
  47,282
  50,386
  53,616
  56,979
  60,482
  64,133
  67,940
  71,911
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  9,480
  4,604
  5,304
  5,983
  6,622
  7,200
  7,700
  8,107
  8,408
  8,594
  8,586
  8,541
  8,377
  8,104
  7,730
  7,271
  6,741
  6,160
  5,544
  4,913
  4,285
  3,676
  3,099
  2,566
  2,086
  1,662
  1,298
  992
  742
  541
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Adobe Systems Incorporated is a software company. The Company offers products and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences. It operates through three segments: Digital Media, Digital Marketing, and Print and Publishing. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content. Its Digital Marketing segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. Its Print and Publishing segment addresses market opportunities ranging from the diverse authoring and publishing needs of technical and business publishing to its legacy type and original equipment manufacturer (OEM) printing businesses.

FINANCIAL RATIOS  of  Adobe Systems (ADBE)

Valuation Ratios
P/E Ratio 57.6
Price to Sales 13.4
Price to Book 11.5
Price to Tangible Book
Price to Cash Flow 33.5
Price to Free Cash Flow 35.7
Growth Rates
Sales Growth Rate 24.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -12.7%
Cap. Spend. - 3 Yr. Gr. Rate 3.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 22.2%
Total Debt to Equity 22.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.4%
Ret/ On Assets - 3 Yr. Avg. 9.5%
Return On Total Capital 17.2%
Ret/ On T. Cap. - 3 Yr. Avg. 12.5%
Return On Equity 21.3%
Return On Equity - 3 Yr. Avg. 15.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 86.2%
Gross Margin - 3 Yr. Avg. 85.5%
EBITDA Margin 33.7%
EBITDA Margin - 3 Yr. Avg. 30.5%
Operating Margin 29.7%
Oper. Margin - 3 Yr. Avg. 24.7%
Pre-Tax Margin 29.3%
Pre-Tax Margin - 3 Yr. Avg. 24%
Net Profit Margin 23.2%
Net Profit Margin - 3 Yr. Avg. 18.8%
Effective Tax Rate 20.8%
Eff/ Tax Rate - 3 Yr. Avg. 22.4%
Payout Ratio 0%

ADBE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADBE stock intrinsic value calculation we used $7302 million for the last fiscal year's total revenue generated by Adobe Systems. The default revenue input number comes from 2017 income statement of Adobe Systems. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ADBE stock valuation model: a) initial revenue growth rate of 24.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ADBE is calculated based on our internal credit rating of Adobe Systems, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Adobe Systems.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ADBE stock the variable cost ratio is equal to 53.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1271 million in the base year in the intrinsic value calculation for ADBE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Adobe Systems.

Corporate tax rate of 27% is the nominal tax rate for Adobe Systems. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ADBE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ADBE are equal to 5.5%.

Life of production assets of 18.4 years is the average useful life of capital assets used in Adobe Systems operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ADBE is equal to -28.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $8460 million for Adobe Systems - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 493.837 million for Adobe Systems is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Adobe Systems at the current share price and the inputted number of shares is $97.7 billion.

Management's discussion and analysis

ACQUISITIONS

During fiscal 2015, we completed our acquisition of privately held Fotolia, a leading marketplace for royalty-free photos, images, graphics and HD videos, for $807.5 million. During fiscal 2015, we integrated Fotolia into our Digital Media reportable segment.
We also completed other immaterial business acquisitions during the fiscal years presented. Pro forma information has not been presented for any of our fiscal 2016, 2015 and 2014 acquisitions as the impact to our Consolidated Financial Statements was not material.
Subsequent to December 2, 2016, we completed our acquisition of TubeMogul, a publicly held video advertising platform company, for approximately $549 million in cash consideration, as well as the assumption of certain employee equity awards. The initial purchase accounting for this transaction has not yet been completed given the short period of time between the acquisition date and the issuance of these financial statements. TubeMogul will be integrated into our Digital Marketing reportable segment for financial reporting purposes in the first quarter of fiscal 2017.

Overview of 2016

For fiscal 2016, we reported strong financial results consistent with the continued execution of our long-term plans for our two strategic growth areas, Digital Media and Digital Marketing, while continuing to market and license a broad portfolio of products and solutions.
In our Digital Media segment, we are a market leader with Adobe Creative Cloud, our subscription-based offering for creating and publishing content and applications. Creative Cloud delivers value through frequent product updates, storage and access to user files stored in the cloud with syncing of files across users' machines, access to marketplace, social and community-
based features with our Adobe Stock and Behance services, app creation capabilities and affordable point pricing for cost-sensitive customers.
We offer Creative Cloud for individuals, students, teams and enterprises. These Creative Cloud offerings address the multiple routes to market we use to license our creative software to targeted customers. Adoption of Creative Cloud has transformed our business model, and we continue to expect this to drive higher long-term revenue growth through an expansion of our customer base by acquiring new users through a lower cost of entry and delivery of additional features and value, as well as keeping existing customers current on our latest release. We have also built out a marketplace for Creative Cloud subscribers to enable the delivery and purchase of stock content in our Adobe Stock service. Overall, our strategy with Creative Cloud is designed to enable us to increase our revenue with users, attract more new customers, and grow a recurring and predictable revenue stream that is recognized ratably.
We continue to implement strategies that will accelerate awareness, consideration and purchase of subscriptions to our Creative Cloud offerings. These strategies include increasing the value Creative Cloud users receive, such as offering new mobile applications, as well as targeted promotions and offers that attract past customers and potential users to try out and ultimately subscribe to Creative Cloud. Because of the shift towards Creative Cloud subscriptions and Enterprise Term License Agreements (“ETLAs”), revenue from perpetual licensing of our Creative products is now immaterial to our business.
We are also a market leader with our Adobe Document Cloud offerings built around our Acrobat family of products, the Adobe Reader and a set of integrated cloud-based document services, including Adobe Sign. Adobe Acrobat provides reliable creation and exchange of electronic documents, regardless of platform or application source type. Adobe Document Cloud, which we believe enhances the way people manage critical documents at home, in the office and across devices, includes Adobe Acrobat DC and Adobe Sign, and a set of integrated services enables users to create, review, approve, sign and track documents whether on a desktop or mobile device. Adobe Acrobat DC, with a touch-enabled user interface, is offered both through subscription and perpetual licenses.
Annualized Recurring Revenue (“ARR”) is currently the key performance metric our management uses to assess the health and trajectory of our overall Digital Media segment. ARR should be viewed independently of revenue, deferred revenue and unbilled deferred revenue as ARR is a performance metric and is not intended to be combined with any of these items. We adjust our reported ARR on an annual basis to reflect any material exchange rates changes. Our reported ARR results in fiscal 2016 are based on currency rates set at the start of fiscal 2016 and held constant throughout the year. We calculate ARR as follows:
Creative ARR
Annual Value of Creative Cloud Subscriptions and Services
+
Annual Digital Publishing Suite Contract Value
+
Annual Creative ETLA Contract Value
Document Cloud ARR
Annual Value of Document Cloud Subscriptions and Services
+
Annual Document Cloud ETLA Contract Value
Digital Media ARR
Creative ARR
+
Document Cloud ARR
Creative ARR exiting fiscal 2016 was $3.54 billion, up from $2.50 billion at the end of fiscal 2015. Document Cloud ARR exiting fiscal 2016 was $475 million, up from $385 million at the end of fiscal 2015. Total Digital Media ARR grew to $4.01 billion at the end of fiscal 2016, up from $2.88 billion at the end of fiscal 2015. Revaluing our ending ARR for fiscal 2016 using currency rates at the beginning of fiscal 2017, our Digital Media ARR at the end of fiscal 2016 would be $3.99 billion or approximately $27 million lower than the ARR reported above.
Our success in driving growth in ARR has positively affected our revenue growth. Creative revenue in fiscal 2016 was $3.18 billion, up from $2.30 billion in fiscal 2015 and representing 38% year-over-year growth. Document Cloud revenue in fiscal 2016 was $764.9 million, slightly down from $792.3 million in fiscal 2015 as we continue to transition Document Cloud to a subscription-based model. Total Digital Media segment revenue grew to $3.94 billion in fiscal 2016, up from $3.10 billion in fiscal 2015 and representing 27% year-over-year growth.
We are a market leader in the fast-growing category addressed by our Digital Marketing segment. Our Digital Marketing business provides comprehensive solutions that include analytics, social marketing, targeting, media optimization, digital experience management, cross-channel campaign management, audience management, premium video delivery and monetization. We deliver these capabilities through our Adobe Marketing Cloud, an integrated offering enabling marketers to measure, personalize and optimize marketing campaigns and digital experiences across channels for optimal marketing performance. With its broad set of solutions, including Adobe Analytics, Adobe Target, Adobe Social, Adobe Media Optimizer, Adobe Experience Manager, Adobe Campaign, Adobe Audience Manager and Adobe Primetime, as well as real-time dashboards and a collaborative interface, customers of Adobe Marketing Cloud are able to combine data, insights and digital content to deliver a personalized, relevant experience to their constituents.
In addition to chief marketing officers and digital marketers, users of our Adobe Marketing Cloud solutions include marketing professionals such as search engine marketers, media managers, media buyers and marketing research analysts. Customers also include web content editors, web analysts and web marketing managers. These customers often are involved in workflows that utilize other Adobe products, such as our Digital Media offerings and our video workflow and delivery technologies. By combining the creativity of our Digital Media business with the science of our Digital Marketing business, we help our customers to more efficiently and effectively make, manage, measure and monetize their content across every channel with an end-to-end workflow and feedback loop.
We utilize a direct salesforce to market and license our Adobe Marketing Cloud solutions, as well as an extensive ecosystem of partners including marketing agencies, systems integrators and developers that help license and deploy our solutions to their customers. We have made significant investments to broaden the scale and size of all of these routes to market, and our recent financial results reflect the success of these investments. In fiscal 2016, we achieved record Marketing Cloud revenue of $1.63 billion, which represents 20% year-over-year revenue growth. In December 2016, we acquired TubeMogul and we will integrate TubeMogul in our Digital Marketing business in the first quarter of fiscal 2017. We expect that the addition of TubeMogul and sustained demand across our portfolio of Marketing Cloud solutions will drive revenue growth in future years.
Financial Performance Summary for Fiscal 2016
   
Total Digital Media ARR of approximately $4.01 billion as of December 2, 2016 increased by $1.13 billion, or 39%, from $2.88 billion as of November 27, 2015. The change in our Digital Media ARR was primarily due to increases in the number of paid Creative Cloud and Document Cloud subscriptions, and continued adoption of our ETLAs.
   
Creative revenue of $3.18 billion increased by $873.2 million, or 38%, during fiscal 2016, from $2.30 billion in fiscal 2015. The increase was primarily due to the increase in subscription revenue associated with our Creative Cloud offerings, and to a lesser extent, increases in revenue associated with our Creative Cloud Photography Plan subscription offering.
   
Adobe Marketing Cloud revenue of $1.63 billion increased by $272.7 million, or 20%, during fiscal 2016, from $1.36 billion in fiscal 2015. The increase was primarily due to continued adoption of our Adobe Experience Manager (“AEM”) offering and increases in Adobe Analytics and Adobe Campaign revenue.
   
Our total deferred revenue of $2.01 billion as of December 2, 2016 increased by $529.5 million, or 36%, from $1.49 billion as of November 27, 2015. The increase was primarily due to increases in Creative Cloud individual and team subscriptions, ETLAs and new contracts and renewals for our Adobe Marketing Cloud solutions.
   
Cost of revenue of $819.9 million increased by $75.6 million, or 10%, during fiscal 2016, from $744.3 million in fiscal 2015. The increase was primarily due to increases in costs associated with compensation and related benefits driven by additional headcount and increases in data center costs.
   
Operating expenses of $3.54 billion increased by $392.8 million, or 12%, during fiscal 2016, from $3.15 billion in fiscal 2015. The increase was primarily due to higher costs associated with compensation and related benefits driven by additional headcount.
   
Net income of $1.17 billion increased by $539.2 million, or 86%, during fiscal 2016 from $629.6 million in fiscal 2015 primarily due to subscription revenue growth.
   
Net cash flow from operations of $2.20 billion during fiscal 2016 increased by $730.2 million, or 50%, from $1.47 billion during fiscal 2015 primarily due to higher net income and the increase in deferred revenue.

[Source: Form 10-K dated 2017-01-20]

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▶ A Flurry Of Earnings Results   [10:39AM  Zacks]
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Financial statements of ADBE
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