Adobe Inc.

HON Details

Adobe Inc. (NASDAQ: ADBE), formerly Adobe Systems Incorporated, is a software company. Professionals, marketers, knowledge workers, application developers, organizations, and consumers use the company's technologies and services to create, manage, measure, optimize, and engage with compelling content and experiences. Digital Media, Digital Experience, and Publishing are its three segments.

Latest News:

• Adobe and Crooked Media Partnership: Adobe announced a partnership with Crooked Media on June 8, 2022, to make podcasts more accessible by using Adobe Premiere Pro's Speech to Text technology to caption popular content. Crooked Media is a progressive independent media company that delivers bold content to entertain, inform, and inspire action.
  

Q2 FY22 Results Highligts:

• Record Revenue Growth: With robust demand across Creative Cloud, Document Cloud, and Experience Cloud Designs, revenue for Q2 FY22 (period ended June 3, 2022) was USD 4.39 billion, up 14.32% from USD 3.84 billion in Q2 FY21.
• Increased Profitability & Margins: In Q2 FY22, operating income and net income were USD 1.53 billion and 1.18 billion, respectively, compared to USD 1.41 billion and 1.12 billion in Q2 FY21. Furthermore, the company's operating and net margins in Q2 FY22 were 34.9% and 26.9%, respectively, significantly better than the industry median, demonstrating the company's profitability trend.
• Financial Strength: Adobe's cash flows from operations were USD 2.04 billion, its remaining performance obligations ("RPO") were USD 13.82 billion in Q2 FY22, and the company repurchased about 1.9 million shares, demonstrating its financial and liquid strength.

Q3 FY22 & Full Year 2022 Outlook:

(Source: Company Filings) 

Key Risks:

• Cyber Security Risks: Cyberattacks, password theft, service outages, and other technological threats all threaten Adobe. As a result, Adobe's operations are in danger due to technological risk. Adobe must also adapt as technology and innovation change to maintain its competitive advantage.
• Legal Compliance Risk: Adobe's usage of artificial intelligence in its products may generate social and ethical challenges that could hurt the company's bottom line.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

The company's financial performance was decent in the quarter just gone by, with a considerable increase in digital media revenue, strong cash flows, and strong growth in monthly active users, surpassing 50 million in Q2 FY22. It will continue to gain digital media business by introducing new products in the creative cloud and document cloud, aimed at a broad and growing customer base. From a technical standpoint, the stock price has dropped 45.14% in the last nine months and is currently lagging at a 14-day RSI of 33.62, indicating that it has entered the oversold zone.

Based on the current quarter financials, shifting to digital business, robust margins, positive outlook, associated risks, and current valuation, we recommend a "Hold" rating on the stock at the current market price of USD 359.19 as of June 17, 2022, at 08:41 AM PDT.

1-Year Technical Price Chart (as of June 17, 2022, at 08:41 AM PDT). Source: REFINITIV, Analysis by Kalkine Group 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.