Loading...

Adobe Systems

Nasdaq:ADBE
Snowflake Description

Flawless balance sheet with outstanding track record.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
ADBE
Nasdaq
$86B
Market Cap
  1. Home
  2. US
  3. Software
2017/12/16
Company description

Adobe Systems Incorporated operates as a diversified software company worldwide. More info.


Add to Portfolio Compare Print Invest
SHARE PRICE
3 Month History
ADBE
Industry
5yr Volatility vs Market

Value

 Is Adobe Systems undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Adobe Systems to its discounted cash flow analysis.value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Adobe Systems is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Adobe Systems's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Adobe Systems's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Adobe Systems is overvalued based on earnings compared to the US Software industry average.
  • Adobe Systems is overvalued based on earnings compared to the US market.
Price based on expected Growth
Does Adobe Systems's expected growth come at a high price?
  • Adobe Systems is poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Adobe Systems's assets?
  • Adobe Systems is overvalued based on assets compared to the US Software industry average.
X
Value checks
We assess Adobe Systems's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) ( Click here or on bar chart for details of DCF calculation. )
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. Adobe Systems has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (31.45%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (2 Stage Free Cash Flow to Equity)

The calculations below outline how an intrinsic value for Adobe Systems is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$14,267

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $4,806 × (1 + 2.47%) ÷ (9.2% – 2.47%)

Terminal value based on the Perpetuity Method where growth (g) = 2.47%:
$73,227

Present value of terminal value:
$47,168

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
$61,436 = $14,267 + $47,168

Value = Total value / Shares Outstanding ($61,436 / 493)

Discount to Share Price

Value per share:
$124.63

Current discount (share price of $177.51): -42.43%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 9.2% = 2.47% + (0.893 * 7.53%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value ($86,265,027,450).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.893 = 0.881 (1 + (1- 35%) (2.18%))

Levered Beta used in calculation = 0.893



Assumptions
  1. The risk free rate of 2.47% is from the 10 year government bond rate in USD.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (7.53%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Adobe Systems expected to perform in the next 1 to 3 years based on estimates from 24 analysts?

The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Annual Growth Rate
18.5%
Expected annual growth in earnings.
Earnings growth vs Low Risk Savings
Is Adobe Systems expected to grow at an attractive rate?
  • Adobe Systems's earnings growth is expected to exceed the low risk savings rate of 4.5%.
Growth vs Market Checks
  • Adobe Systems's earnings growth is expected to exceed the US market average.
  • Adobe Systems's revenue growth is expected to exceed the US market average.
Annual Growth Rates Comparison
Analysts growth expectations
Super high growth metrics
High Growth Checks
  • Adobe Systems's earnings are expected to grow by 18.5% yearly, however this is not considered high growth (20% yearly).
  • Adobe Systems's revenue is expected to grow by 13.9% yearly, however this is not considered high growth (20% yearly).
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occurred. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
  • Adobe Systems is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

Improvement & Relative to industry
  • Performance (ROE) is expected to be above the current US Software industry average.
  • An improvement in Adobe Systems's performance (ROE) is expected over the next 3 years.
X
Future performance checks
We assess Adobe Systems's future performance by looking at:
  1. Is the annual earnings growth rate expected to beat the low risk savings rate, plus a premium to keep pace with inflation?
  2. Is the annual earnings growth rate expected to beat the average growth rate in earnings of the US market? (1 check)
  3. Is the annual revenue growth rate expected to beat the average growth rate in revenue of the US market? (1 check)
  4. Is the annual earnings growth rate expected to be above 20%? (1 check)
  5. Is the annual revenue growth rate expected to be above 20%? (1 check)
  6. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Adobe Systems has a total score of 4/6, see the detailed checks below.

Note 1: We use GAAP Net Income Excluding Exceptional Items for our Earnings in all our calculations.

Full details on the Future part of the Simply Wall St company analysis model.

Past Performance

  How has Adobe Systems performed over the past 5 years?

The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Adobe Systems's growth in the last year to its industry (Software).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
  • Adobe Systems's year on year earnings growth rate has been positive on average over the past 5 years.
  • Adobe Systems's 1 year earnings growth exceeds its 5 year annual average (45.2% vs 10%)
  • Adobe Systems's earnings growth has exceeded the US Software industry average in the past year (45.2% vs 17.2%).
Earnings and Revenue History
Adobe Systems's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
  • Strong return on shareholders funds (ROE > 20%) last year.
  • Adobe Systems performed above the US Software industry average based on Return on Assets (ROA) last year.
  • Performance based on Return on Capital Employed (ROCE) has improved significantly over 3 years.
X
Past performance checks
We assess Adobe Systems's performance over the past 5 years by checking for:
  1. Has earnings increased in past 5 years? (1 check)
  2. Has the earnings growth in the last year exceeded that of the Software industry? (1 check)
  3. Is the recent earnings growth over the last year higher than the average annual growth over the past 5 years? (1 check)
  4. Is the Return on Equity (ROE) higher than 20%? (1 check)
  5. Is the Return on Assets (ROA) above industry average? (1 check)
  6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Adobe Systems has a total score of 6/6, see the detailed checks below.

Note: We use GAAP Net Income excluding extraordinary items in all our calculations.

Full details on the Past part of the Simply Wall St company analysis model.

Health

 How is Adobe Systems's financial health and their level of debt?

A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

The boxes below represent the relative size of what makes up Adobe Systems's finances.

The net worth of a company is the difference between its assets and liabilities.
Net Worth
  • Adobe Systems is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
  • Adobe Systems's cash and other short term assets cover its long term commitments.
Balance sheet
This treemap shows a more detailed breakdown of Adobe Systems's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Assets
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
  • Low level of unsold assets.
  • Total debt is covered by total short term assets, assets are 3.9x debt.
Historical Debt
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
  • Adobe Systems's level of debt (22.2% of total debt) compared to net worth is satisfactory (less than 40%).
  • The level of debt compared to net worth has been reduced over the past 5 years (22.6% vs 22.2% today).
  • Total debt is well covered by annual operating cash flow (147.5%, greater than 20% of total debt).
  • Interest on debt is well covered by earnings (EBIT is 29.1x coverage).
X
Financial health checks
We assess Adobe Systems's financial health by checking for:
  1. Are short term assets greater than short term liabilities? (1 check)
  2. Are short term assets greater than long term liabilities? (1 check)
  3. Has the debt to equity ratio increased in the past 5 years? (1 check)
  4. Is the debt to equity ratio over 40%? (1 check)
  5. Is the debt covered by short term assets? (1 check)
  6. Are earnings greater than 5x the interest on debt (if company pays interest at all)? (1 check)
  7. Adobe Systems has a total score of 6/6, see the detailed checks below.


Full details on the Health part of the Simply Wall St company analysis model.

Dividends

 What is Adobe Systems's current dividend yield, its reliability and sustainability?

Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Dividend payments
0%
Current annual income from Adobe Systems dividends.
If you bought $2,000 of Adobe Systems shares you are expected to receive $0 in your first year as a dividend.
Dividend Amount
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
  • Paying below low risk savings rate (2.25%).
  • Paying below markets top dividend payers (3.18%).
Annualized Historical and Future Dividends
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

We also check to see if the dividend has increased in the past 10 years.
  • Not paying a notable dividend.
  • Not paying a notable dividend.
Current Payout to shareholders
What portion of Adobe Systems's earnings are paid to the shareholders as a dividend.
  • Not paying a notable dividend.
Future Payout to shareholders
  • Insufficient estimate data to determine if a dividend will be paid in 3 years.
X
Income/ dividend checks
We assess Adobe Systems's dividend by checking for:
  1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
  2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
  3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
  4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
  5. How sustainable is the dividend, can Adobe Systems afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
  6. Adobe Systems has a total score of 0/6, see the detailed checks below.


Full details on the Dividends part of the Simply Wall St company analysis model.

Management

 What is the CEO of Adobe Systems's salary, the management and board of directors tenure and is there insider trading?

Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
CEO
Shantanu Narayen, image provided by Google.
Shantanu Narayen
COMPENSATION $20,035,334
AGE 53
TENURE AS CEO 10 years
CEO Bio

Mr. Shantanu Narayen has been the Chairman of the Board at Adobe Systems Incorporated since February 1, 2017 and its Chief Executive Officer since December 01, 2007 and President January 2005. Mr. Narayen has been Chief Executive Officer of Adobe Systems Software Ireland Limited since 2007 and serves as its President. He serves as Senior Advisor of KKR & Co. L.P. He served as the Chief Operating Officer of Adobe Systems Inc. from January 2005 to December 2007 and served as its Executive Vice President of Worldwide Product Marketing & Development from March 2001 to January 2005. He held key product research and development positions within Adobe, including Senior Vice President of worldwide product development and Vice President and General Manager of the engineering technology group. Before joining Adobe in 1998, Mr. Narayen co-founded Pictra, Inc. He served as director of desktop and collaboration products at Silicon Graphics, Inc. and served various senior management positions at Apple Computer, Inc. He has been Director of Adobe Systems Incorporated since December 01, 2007 and Pfizer Inc. since September 27, 2013. He serves as a Director of Adobe Systems Software Ireland Limited and Stario.com. He served as Director of Metavante Technologies, Inc. since November 14, 2007 and Dell Inc. from September 2009 to October 29, 2013. Mr. Narayen is a member of the U.S. President's Management Advisory Board, established in 2010 to provide advice on how to implement best business practices, including the application of technology, on matters related to federal government management and operation. He serves on the Advisory Board of the Haas School of Business, University of California at Berkeley and is President of the board of the Adobe Foundation, which funds philanthropic initiatives around the world. He holds five patents and is a frequent speaker at industry and academic events. Mr. Narayen holds Bachelor's Degree, B.S. in Electronics Engineering from Osmania University in India, a Master's degree, M.S. in Computer Science from Bowling Green State University and a Master's Degree, M.B.A. in Business Administration from the Haas School of Business, University of California, Berkeley.

CEO Compensation
  • Shantanu's compensation has been consistent with company performance over the past year.
  • Shantanu's compensation appears reasonable.
Management Team Tenure

Average tenure and age of the Adobe Systems management team in years:

11.6
Average Tenure
57.3
Average Age
  • The average tenure for the Adobe Systems management team is over 5 years, this suggests they are a seasoned and experienced team.
Management Team

Shantanu Narayen

TITLE
Chairman
COMPENSATION
$20M
AGE
53
TENURE
10 yrs

John Warnock

TITLE
Co-Founder & Director
COMPENSATION
$375K
AGE
76
TENURE
35.9 yrs

Chuck Geschke

TITLE
Co-Founder & Director
COMPENSATION
$375K
AGE
78
TENURE
35.9 yrs

Amy Banse

TITLE
Managing Director & Director
COMPENSATION
$340K
AGE
59

Mark Garrett

TITLE
Executive VP & CFO
COMPENSATION
$6M
AGE
59
TENURE
10.8 yrs

Bryan Lamkin

TITLE
Executive VP & General Manager of Digital Media
COMPENSATION
$6M
AGE
56
TENURE
1.9 yrs

Matt Thompson

TITLE
Executive Vice President of Worldwide Field Operations
COMPENSATION
$6M
AGE
58
TENURE
4.9 yrs

Brad Rencher

TITLE
Executive VP & GM of Digital Marketing
COMPENSATION
$6M
AGE
43
TENURE
1.9 yrs

John Murphy

TITLE
Chief Accounting Officer
AGE
49
TENURE
0.8 yrs

Abhay Parasnis

TITLE
Executive VP & CTO
COMPENSATION
$7M
AGE
42
TENURE
2.4 yrs
Board of Directors Tenure

Average tenure and age of the Adobe Systems board of directors in years:

12.2
Average Tenure
63.9
Average Age
  • The average tenure for the Adobe Systems board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors

John Warnock

TITLE
Co-Founder & Director
COMPENSATION
$375K
AGE
76
TENURE
34.9 yrs

Chuck Geschke

TITLE
Co-Founder & Director
COMPENSATION
$375K
AGE
78
TENURE
34.9 yrs

Amy Banse

TITLE
Managing Director & Director
COMPENSATION
$340K
AGE
59
TENURE
5.6 yrs

Ned Barnholt

TITLE
Independent Director
COMPENSATION
$355K
AGE
73
TENURE
12.3 yrs

Shantanu Narayen

TITLE
Chairman
COMPENSATION
$20M
AGE
53
TENURE
0.9 yrs

Dan Rosensweig

TITLE
Director
COMPENSATION
$362K
AGE
55
TENURE
8.9 yrs

Frank Calderoni

TITLE
Director
COMPENSATION
$365K
AGE
60
TENURE
5.6 yrs

Jim Daley

TITLE
Lead Director
COMPENSATION
$352K
AGE
75
TENURE
0.9 yrs

Rob Burgess

TITLE
Director
COMPENSATION
$345K
AGE
59
TENURE
12 yrs

Laura Desmond

TITLE
Independent Director
COMPENSATION
$342K
AGE
51
TENURE
5.6 yrs
Recent Insider Trading
  • Adobe Systems insiders have only sold shares in the past 3 months.
Who owns this company?
X
Management checks
We assess Adobe Systems's management by checking for:
  1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
  2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
  3. Is the average tenure of the management team less than 2 years? (1 check)
  4. Is the average tenure of the board of directors team less than 3 years? (1 check)
  5. Adobe Systems has a total score of 0/6, this is not included on the snowflake, see the detailed checks below.


Note: We use the top 6 management executives and board members in our calculations.

Note 2: Insider trading include any internal stakeholders and these transactions .

Full details on the Management part of the Simply Wall St company analysis model.

Company News

Company Info

Map
Description

Adobe Systems Incorporated operates as a diversified software company worldwide. 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. This segment’s flagship product is Creative Cloud, a subscription service that allows customers to download and install the latest versions of its creative products. This segment serves traditional content creators, Web application developers, and digital media professionals, as well as their management in marketing departments and agencies, companies, and publishers. The company’s Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured, and optimized. This segment provides analytics, social marketing, targeting, advertising and media optimization, digital experience management, cross-channel campaign management, and audience management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers, and chief revenue officers. Its Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development, and high-end printing, as well as publishing needs of technical and business, and original equipment manufacturers (OEMs) printing businesses. The company markets and licenses its products and services directly to enterprise customers through its sales force, as well as to end-users through app stores and through its Website at adobe.com. It also distributes products and services through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers, and OEMs. The company was founded in 1982 and is headquartered in San Jose, California.

Details
Name: Adobe Systems Incorporated
Ticker: ADBE
Exchange: NasdaqGS
Founded: 1982
Market Cap: $86,265,027,450
Shares outstanding: 492,943,014
Website: http://www.adobe.com
Address: Adobe Systems Incorporated
345 Park Avenue,
San Jose,
California, 95110,
United States
Listings
Exchange Symbol Ticker Symbol Security Exchange Country Currency Listed on
NasdaqGS ADBE Common Stock Nasdaq Global Select US USD 13. Aug 1986
DB ADB Common Stock Deutsche Boerse AG DE EUR 13. Aug 1986
SWX ADBE Common Stock SIX Swiss Exchange CH CHF 13. Aug 1986
WBAG ADBE Common Stock Wiener Boerse AG AT EUR 13. Aug 1986
BMV ADBE * Common Stock Bolsa Mexicana de Valores MX MXN 13. Aug 1986
Number of employees
Current staff
Staff numbers
15,706
Adobe Systems employees.
Industry
Industry: Application Software
Sector: Software