Adobe defies forecasts and secures another blockbuster year
It's business as usual at Adobe, which is stringing together yet another consecutive quarter of growth and, for the moment, handsomely disproving fears of AI-driven disruption.
Revenue is set to rise another 10.5% this year, from $21.5bn to $23.8bn. The operating leverage of the subscription model is evident in the even faster expansion of operating profit, which increases by 12.5%.
This expansion is adjusted for the $1bn break-up fee paid by Adobe after the aborted acquisition of Figma. The latter had irked investors, as, at a multiple of 50x the target's revenue, the deal carried a whiff of desperation.
In reality, Adobe remains a prodigious cash machine, with stratospheric profitability achieved without leverage. This year the group should return close to $11bn in cash to its shareholders via massive share buybacks - another 31 million shares over twelve months.
MarketScreener notes that the earnings power of the global leader in creative software has literally quintupled in ten years, while the number of shares outstanding has fallen by 15%. See on this topic ABC of financial analysis: the number of shares outstanding.
At 15x free cash flow, Adobe is still valued near its 10-year lows, i.e. levels not seen since the subprime crisis and the subsequent years of disenchantment with the US technology sector.
Investors convinced that artificial intelligence will benefit the global leader in creative software rather than hurt it will no doubt see this as an opportunity to seize.
Adobe Inc. specializes in the development of software for content design, publication and visual distribution. Net sales break down by product family as follows:
- digital media software (74.3%): primarily creation, illustration, viewing, conversion and digital contents broadcasting;
- online marketing and business process management software (24.7%): web publishing, information security, business resources planning, document production management, application automation software, etc.;
- other (1%): software for high-definition printing, online training, etc.
Net sales break down by source of income between sales of subscriptions (96.4%), sales of services (2.3%; consulting, training, maintenance and technical support services) and sales of products (1.3%).
Net sales are distributed geographically as follows: the United States (52.7%), Americas (6.7%), Europe/Middle East/Africa (26.5%) and Asia/Pacific (14.1%).
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