Key takeaways
View moreAdobe's current valuation appears fair, balancing its strong financial performance, market leadership, and growth prospects against potential risks. The company's high profitability metrics and successful AI monetization suggest potential for upside, while intense competition and regulatory risks provide counterbalance. The current valuation multiples seem to adequately reflect Adobe's position in the base case scenario.
- Adobe's revenue has grown consistently, with the latest quarter showing $5.714 billion in sales, driven by its subscription-based model and strategic acquisitions.
- Profitability metrics, such as gross profit margin (88.40%) and net profit margin (31.69%), are significantly higher than industry averages, indicating efficient expense management.
- The company's operational efficiency is reflected in its strong return on assets (23.00%) and return on equity (47.28%), demonstrating efficient asset utilization and expense management.
- AI is a key growth driver, contributing significantly to revenue and ARR growth, with AI-first standalone and add-on products contributing greater than $125 million book of business exiting Q1 fiscal 2025.
- Adobe faces intense competition from large tech companies and specialized providers, requiring continuous innovation and adaptation to maintain its competitive edge.
- Regulatory risks, including complex and evolving data privacy and security regulations, pose a threat to Adobe's business operations and financial performance.
- Management guidance for Q2 FY25 includes total revenue of $5.77 billion to $5.82 billion, reaffirming the company's full-year guidance for fiscal year 2025.
- Adobe has generally underperformed the Technology Select Sector SPDR Fund (XLK) over the past year but has shown recent outperformance in the last month, indicating a potential shift in performance.
- The company's strategic focus on customer groups and the "One Adobe" strategy are gaining traction, driving targeted growth and market penetration.
- Adobe's strong cash flow generation, with $2.482 billion from operations in the latest quarter, provides financial flexibility for investments, acquisitions, and shareholder returns.
Evaluation summary
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Company Overview:
- Adobe, Inc. (ADBE) is a global technology company providing digital marketing and media solutions. Its operations are divided into three segments: Digital Media, Digital Experience, and Publishing and Advertising.
- The Digital Media segment includes Creative Cloud (Photoshop, Illustrator, etc.) and Document Cloud (Acrobat, Acrobat Sign, etc.). The Digital Experience segment offers integrated platforms for managing customer experiences. The Publishing and Advertising segment includes legacy products and services.
- The company's revenue is primarily driven by its Digital Media and Digital Experience segments. The benchmarks used for comparative analysis include the Technology Select Sector SPDR Fund (XLK), and industry peers include Salesforce, Inc. (CRM) and Microsoft Corp. (MSFT).
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Financial Performance:
- Adobe's financial performance shows consistent growth in revenue. The latest quarterly revenue (2025-02-28) was $5.714 billion, compared to $5.309 billion in the quarter ending 2024-05-31.
- Gross profit margin is strong, at 88.40% for the quarter ending 2025-02-28, compared to the industry average of -52.47%. Net profit margin is also robust, at 31.69%, significantly higher than the industry average of -4919.63%.
- Return on Assets (ROA) is 23.00%, Return on Equity (ROE) is 47.28%, and Return on Invested Capital (ROIC) is 35.95%. These metrics indicate strong profitability and efficient use of capital.
- The earnings call highlighted that AI is a key growth driver, contributing significantly to revenue and ARR growth.
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Operational Efficiency:
- Adobe's balance sheet shows a healthy level of current assets, with $10.855 billion as of 2025-02-28. Total current liabilities were $9.163 billion, resulting in a working capital of $1.692 billion.
- The company's cash flow from operations was $2.482 billion for the quarter ending 2025-02-28. Capital expenditures were $85 million, and depreciation and amortization were $217 million.
- Free cash flow to equity was $2.456 billion. The company has been actively repurchasing shares, with $3.154 billion spent on share repurchases in the latest quarter.
- The current ratio is 1.18, and the quick ratio is also 1.18, indicating the ability to meet short-term obligations. The debt-to-equity ratio is 50.12%, indicating a moderate level of leverage.
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Growth Opportunities:
- Adobe is focusing on market expansion through AI-powered solutions and tailored offerings for specific customer groups. The company is integrating Creative Cloud and Experience Cloud into unified solutions like GenStudio.
- The company is investing in R&D to drive innovation, particularly in AI and generative AI. The earnings call mentioned that AI-first standalone and add-on products have already contributed greater than $125 million, book of business exiting Q1 fiscal 2025 and is expected to double by the end of fiscal ‘25.
- Adobe is expanding its partner ecosystem and investing in sales capacity to deliver Adobe-wide offerings. The company is also focusing on One Adobe deals by integrating creative and marketing products into a single enterprise solution.
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Recent Developments and Market Sentiment:
- The recent earnings call (2025-03-12) highlighted that AI is a key growth driver, with successful monetization through new products and features.
- Adobe is strategically focusing on customer groups, tailoring offerings to Business Professionals/Consumers and Creative/Marketing Professionals.
- The "One Adobe" strategy, integrating Creative Cloud and Experience Cloud into unified solutions like GenStudio, is gaining traction with enterprise customers.
- Management remains confident in Adobe's ability to navigate macroeconomic challenges and maintain growth momentum.
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Risks and Threats:
- Adobe faces intense competition from large tech companies and specialized providers. The SEC filings highlight the ability to innovate and adapt to rapid technological changes as a key risk.
- Regulatory risks include complex and evolving data privacy and security regulations. The SEC filings mention an ongoing investigation by the FTC and DOJ regarding the company's subscription disclosure and cancellation practices.
- The company is exposed to global macroeconomic conditions and foreign currency fluctuations.
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Valuation Analysis:
- The Enterprise Value to EBITDA ratio is 21.21, and the Enterprise Value to Sales ratio is 8.68. These ratios suggest that Adobe is relatively highly valued compared to industry averages.
- Potential catalysts include the successful monetization of AI and the continued growth of the Digital Media and Digital Experience segments.
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Price Performance:
- Adobe's price performance has been volatile. From March 24, 2025, to May 22, 2025, the stock price increased from $394.47 to $414.33.
- Adobe has generally underperformed the Technology Select Sector SPDR Fund (XLK) over the past year but has shown recent outperformance in the last month. Compared to peers like Salesforce and Microsoft, Adobe's performance has been mixed.
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Future Outlook:
- Management guidance for Q2 FY25 includes total revenue of $5.77 billion to $5.82 billion, Digital Media segment revenue of $4.27 billion to $4.30 billion, and Digital Experience segment revenue of $1.43 billion to $1.45 billion.
- GAAP earnings per share are projected at $3.80 to $3.85, and non-GAAP earnings per share at $4.95 to $5. The company reaffirmed its full-year guidance for fiscal year 2025, assuming current macroeconomic conditions.
- Recent developments, such as the successful monetization of AI and the strategic focus on customer groups, are expected to positively influence the company's future performance.
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Summary:
- Adobe exhibits strong financial health, characterized by consistent revenue growth, high profitability, and robust cash flow. The company's subscription-based model provides a stable revenue stream, while its focus on AI and digital transformation drives innovation and competitive advantage.
- A SWOT analysis reveals the following: Strengths include a strong market position, innovative products, and a subscription-based revenue model. Weaknesses include slightly below-average liquidity ratios and reliance on innovation. Opportunities include market expansion through AI and digital transformation. Threats include intense competition, regulatory scrutiny, and rapid technological changes.
- Adobe's financial health is strong, supported by its profitability, liquidity, and cash flow generation. Critical factors for future performance include the successful monetization of AI, effective management of competition and regulation, and continued innovation.
- Areas requiring further monitoring include the impact of macroeconomic conditions, the effectiveness of capital allocation strategies, and the progress of strategic initiatives.
- Overall, Adobe presents a compelling investment profile, characterized by strong growth potential, high profitability, and a solid financial position. However, investors should be aware of the risks related to competition, regulation, and technological changes.
Price history
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Fundamentals
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Insights
- Adobe exhibits strong financial health, characterized by consistent revenue growth, high profitability margins, and robust cash flow generation.
- The company's subscription-based revenue model provides a stable and predictable stream of income, supporting its financial performance.
- Adobe's focus on innovation, particularly in AI and digital transformation, is expected to drive future growth and maintain its competitive edge.
- While the company's liquidity ratios are slightly below industry averages, its strong cash flow generation and efficient asset utilization mitigate this concern.
- Key risks include intense competition, the need to adapt to rapid technological changes, and evolving data privacy regulations.
Analysis
- Revenue
- Adobe's revenue has shown consistent growth, driven by its subscription-based model and strategic acquisitions.
- The company's focus on digital media and digital experience solutions has fueled demand for its products and services.
- Revenue growth is expected to continue, supported by the increasing adoption of AI and the expansion of Adobe's customer base.
- Profitability
- Adobe exhibits strong profitability, with high gross profit, net profit, and EBITDA margins compared to industry averages.
- The company's efficient expense management and subscription-based revenue model contribute to its profitability.
- Profitability is expected to remain healthy, driven by revenue growth and continued cost control efforts.
- Liquidity
- Adobe maintains a solid liquidity position, with a substantial amount of cash and short-term investments.
- The current and quick ratios are slightly below the industry average, but still indicate the ability to meet short-term obligations.
- The company's strong cash flow generation supports its liquidity position.
- Solvency
- Adobe's solvency appears stable, with a moderate debt-to-equity ratio compared to industry averages.
- The company's ability to generate consistent profits and cash flows supports its long-term financial health.
- The debt/EBITDA ratio is low, indicating a strong ability to cover debt with earnings.
- Operational Efficiency
- Adobe demonstrates high operational efficiency, as evidenced by its strong return on assets, return on equity, and return on capital.
- The company's efficient asset utilization and expense management contribute to its operational efficiency.
- Operational efficiency is expected to remain strong, driven by continued improvements in productivity and cost control.
- Cash Flow Analysis - Adobe exhibits strong cash flow generation, driven by its profitable operations and efficient working capital management. - The company's free cash flow provides financial flexibility for investments, acquisitions, and shareholder returns. - Cash flow is expected to remain robust, supported by the company's subscription-based revenue model and focus on innovation.
- Risk Factors
- Intense competition from large tech companies and specialized providers poses a risk to Adobe's market share and profitability.
- The ability to innovate and adapt to rapid technological changes, particularly in AI, is crucial for maintaining a competitive edge.
- Complex and evolving data privacy and security regulations could impact Adobe's business operations and financial performance.
- Future Outlook
- Adobe is well-positioned for future growth, driven by its strong market position, innovative products, and subscription-based revenue model.
- The company's focus on AI and digital transformation is expected to fuel demand for its solutions.
- Adobe's financial health is expected to remain strong, supported by its profitability, liquidity, and cash flow generation.
- Profitability
Financial statements
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Public filings
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- Adobe is well-positioned in the rapidly evolving digital media and digital experience markets, with a focus on driving innovation, particularly in AI-powered solutions, to meet customer needs.
- The company faces intense competition and must continue to adapt to technological changes, while also navigating complex regulatory environments around data privacy and security.
- Recent events, such as the Figma acquisition termination, have impacted profitability, but the company maintains strong cash flows and is actively investing in its core businesses.
- Key risks include the ability to successfully develop and deploy AI-powered offerings, manage third-party relationships, and address legal/regulatory challenges, all while maintaining its competitive edge.
- Overall, Adobe appears to be executing well on its strategic priorities, but must continue to innovate and manage risks to sustain its market leadership position.
Core Business and Operations:
- Adobe is a global technology company focused on digital media and digital experience solutions
- Key products and services include:
- Digital Media: Creative Cloud (Photoshop, Illustrator, Lightroom, Premiere Pro, etc.), Document Cloud (Acrobat, Acrobat Sign, etc.), and Adobe Express
- Digital Experience: Analytics, Real-Time Customer Data Platform, Experience Manager, Commerce, Marketo Engage, Campaign, etc.
- Customers include creative professionals, communicators, marketers, advertisers, and enterprises across various industries
- Competes with large tech companies, specialized software providers, and emerging AI-powered solutions
Industry and Market Trends:
- Rapid technological changes and increasing adoption of AI/generative AI in creative and marketing workflows
- Growing demand for personalized digital experiences and content across channels
- Evolving data privacy and security regulations globally
Recent Events:
- Launched new generative AI-powered offerings like Adobe Firefly and Acrobat AI Assistant
- Terminated proposed acquisition of Figma, incurring a $1 billion termination fee
- Expanded partnerships and integrations across Digital Media and Digital Experience offerings
Risk Factors:
- Ability to innovate and adapt to rapid technological changes
- Risks related to development and use of AI, including regulatory compliance and reputational harm
- Intense competition from large tech companies and specialized providers
- Reliance on third-party service providers and potential service disruptions
- Exposure to global macroeconomic conditions and foreign currency fluctuations
- Complex and evolving data privacy and security regulations
Legal Matters:
- Ongoing investigation by the FTC and DOJ regarding the company's subscription disclosure and cancellation practices
- Securities class action and shareholder derivative lawsuits related to the Figma acquisition
Management's Discussion and Analysis:
- Strong growth in Digital Media and Digital Experience segments, driven by subscription revenue
- Annualized Recurring Revenue (ARR) for Digital Media grew 12.6% year-over-year
- Profitability impacted by the $1 billion Figma termination fee in fiscal 2024
- Healthy cash flows from operations, with $2.48 billion generated in Q1 2025
- Continued investments in R&D, sales/marketing, and strategic stock repurchases
Earnings calls
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Earnings Report 2025Q1 (2025-03-12)
Key takeaways
- AI is a Key Growth Driver: Adobe is successfully monetizing AI through new products and features, contributing significantly to revenue and ARR growth.
- Strategic Focus on Customer Groups: Tailoring offerings to specific customer groups (Business Professionals/Consumers and Creative/Marketing Professionals) is driving targeted growth and market penetration.
- One Adobe Strategy is Gaining Traction: The integration of Creative Cloud and Experience Cloud into unified solutions like GenStudio is resonating with enterprise customers.
- Financial Discipline and Shareholder Value: Adobe is committed to strong operating margins, cash flow, and opportunistic share repurchases to enhance shareholder value.
- Positive Outlook Despite Macroeconomic Uncertainty: Management remains confident in Adobe's ability to navigate macroeconomic challenges and maintain growth momentum.
Focus of management’s prepared remarks
- AI as a Generational Opportunity: AI is viewed as a major opportunity to reimagine Adobe's technology platforms and serve a larger, more diverse customer base.
- Focus on Customer Groups: Adobe is tailoring offerings and solutions to two key customer groups: Business Professionals and Consumers, and Creative and Marketing Professionals.
- Creative Professionals and Creators: Adobe aims to provide powerful and precise tools for creative professionals, while also offering flexible web and mobile tools for the next generation of creators.
- Marketing Professionals: Adobe is focused on providing marketing professionals with agility, self-service capabilities, and integrated workflows through Adobe GenStudio and Firefly Services.
- Business Professionals and Consumers: Adobe aims to provide ease of use across web and mobile platforms through a freemium model, integrating creativity and productivity with Express and Acrobat.
- Monetization of AI: Generative AI innovation is influencing billions of ARR across acquisition, retention, and value expansion. AI-first standalone and add-on products have already contributed greater than $125 million, book of business exiting Q1 fiscal 2025 and is expected to double by the end of fiscal ‘25.
- Digital Media Growth: Creative growth was driven by broad-based adoption across routes to market and product portfolio with particular strength in new offerings like Firefly Services, an increasing number of One Adobe deals, and a growing base of web and mobile users. Document Cloud continued to see strong organic demand, continued optimizations in free-to-paid conversion journeys and AI Assistant being released in additional languages.
- Experience Cloud Growth: Leading solutions spanning content, data and customer journeys enable enterprises around the world to deliver personalized experiences at scale, helping customers drive both top-line growth and productivity gains.
- Financial Visibility: Starting this quarter, Adobe will provide financial visibility into the two new customer groups and expand on this at the Investor Day at Summit next week.
- Cross-Cloud Offerings: Adobe has continued to expand cross-cloud offerings to better serve different Customer Groups. Examples include Acrobat which is reflected in Creative Cloud and Document Cloud; GenStudio which includes Creative Cloud, Express, Firefly Services and Experience Cloud; Enterprises who want to engage with One Adobe and combine Creative seats with marketing automation; and increasingly Acrobat and Express.
Focus of the analyst Q&A
- AI Monetization and Revenue Impact:
- When will AI become a more material part of total revenue?
- What is required for AI to translate into significant revenue growth?
- Demand Linearity and ARR Growth:
- What were the demand trends seen in the quarter across Creative and Document Cloud?
- What contributed to the Digital Media ARR growth?
- Customer Group Growth Rates:
- Is the faster growth rate in the business professionals and consumer group sustainable?
- Can the creative and marketing professional group catch up in terms of growth?
- Categorization of Revenue:
- What is the rationale behind changing the categorization of revenue and removing historical Document Cloud and Creative Cloud reporting?
- Is this driven by the One Adobe sales motion or other factors?
- Share Repurchase Program:
- Can the accelerated pace of share repurchases be sustained throughout the year?
- AI ARR Disclosure:
- Will the disclosure on AI ARR be updated quarterly or periodically?
- AI Business Segmentation:
- What is the breakdown of the $125 million AI book of business between AI Assistant, Firefly, and GenStudio?
- What are the growth rates for each of these segments?
- Advertising Activity and Consumer Spending:
- How are advertising activity and consumer spending trends impacting Adobe's business, given choppy results from other sectors?
- Firefly App Attach Rate:
- How do you envision the potential attach rate for Firefly app tiers to existing subscriptions?
- Are there any past products that serve as a framework for adoption?
Summary
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Financial Performance
Adobe reported a record first quarter with revenue of $5.71 billion, representing 11% year-over-year growth in constant currency. GAAP earnings per share were $4.14, and non-GAAP earnings per share were $5.08, a 13% year-over-year increase. Digital Media revenue was $4.23 billion, with Digital Media ending ARR at $17.63 billion, growing 12.6% year-over-year. Digital Experience revenue reached $1.41 billion. The company reaffirmed its fiscal year 2025 targets.
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Revenue Drivers
Growth in Digital Media was driven by Acrobat, Adobe Express, and Creative flagship offerings, particularly through web and mobile platforms. The Digital Experience segment saw momentum in content, data, and customer journey product offerings, with Adobe Experience Platform (AEP) and Apps subscription revenue growing nearly 50% year-over-year. GenStudio also contributed significantly. A key driver is the integration of AI across products, impacting acquisition, retention, and value expansion. The company highlighted the AI-first standalone and add-on products such as Acrobat AI Assistant, Firefly App and Services, and GenStudio for Performance Marketing, which contributed greater than $125 million book of business exiting Q1 fiscal 2025.
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Profit Margins and Cost Management
The company expects a non-GAAP operating margin of approximately 45% for Q2 FY25. The effective tax rate in Q1 was 17.0% on a GAAP basis and 18.5% on a non-GAAP basis. The company is focused on driving strong operating margins and cash flow delivery.
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Guidance and Outlook
For Q2 FY25, Adobe targets total revenue of $5.77 billion to $5.82 billion, Digital Media segment revenue of $4.27 billion to $4.30 billion, and Digital Experience segment revenue of $1.43 billion to $1.45 billion. GAAP earnings per share are projected at $3.80 to $3.85, and non-GAAP earnings per share at $4.95 to $5. The company reaffirmed its full-year guidance for fiscal year 2025, assuming current macroeconomic conditions.
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Strategic Initiatives
Adobe is focusing on two primary customer groups: Business Professionals and Consumers, and Creative and Marketing Professionals. The company is integrating creativity and productivity with solutions like Express and Acrobat, and is leveraging AI to enhance personalization at scale through Adobe GenStudio and Firefly Services. They are also expanding their partner ecosystem and investing in sales capacity to deliver Adobe-wide offerings. The company is also focusing on One Adobe deals by integrating creative and marketing products into a single enterprise solution.
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Management Commentary
Management expressed confidence in Adobe's ability to drive growth through innovation and by meeting the evolving needs of its customer base. They emphasized the critical role of Adobe products in powering the global digital economy and highlighted the generational opportunity presented by AI. The tone was optimistic, with a focus on leveraging the breadth of Adobe's products and technology platforms to drive growth for the next decade. The CEO stated that Adobe's mission to change the world through personalized digital experiences is more critical than ever.
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Industry and Market Conditions
Adobe views digital transformation as a continuing priority for businesses. They believe they are uniquely positioned to deliver value through differentiated solutions. The company assumes current macroeconomic conditions will persist and does not foresee tariffs significantly impacting their business.
Comparative analysis
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Benchmarks (as of 2025-05-22)
Technology Select Sector SPDR Fund (XLK)
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Performance Comparison:
- Adobe, Inc. (ADBE) has generally underperformed the Technology Select Sector SPDR Fund (XLK) across most time periods. For instance, over the past year, ADBE's return was -14.27% compared to XLK's 8.22%, a significant underperformance of -22.49%. However, in the last month, ADBE has outperformed XLK, with returns of 17.72% and 15.8% respectively.
- The consistency of ADBE's performance relative to XLK has been poor, with periods of significant underperformance outweighing shorter periods of outperformance.
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Risk and Return Analysis:
- The annualized returns for ADBE are lower than XLK across the 1-year, 2-year, and 3-year periods. For example, the 3-year annualized return for ADBE is 0.62%, while for XLK it is 20.6%.
- ADBE has exhibited higher annualized volatility compared to XLK. For example, on 2022-06-14, ADBE's annualized volatility was 51.98% compared to XLK's 40.37%. This indicates that ADBE's returns are more dispersed and thus riskier than XLK's.
- ADBE's maximum drawdown was -60.02% on 2022-09-30, significantly larger than XLK's maximum drawdown of -33.56% on 2022-10-12. This indicates a higher risk profile for ADBE.
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Risk-Adjusted Performance:
- The Sharpe Ratios for ADBE are generally lower than those of XLK, indicating that XLK has offered better risk-adjusted returns. For example, on 2024-11-29, ADBE's Sharpe Ratio was -0.32, while XLK's was 1.21.
- ADBE's Beta values have generally been above 1, indicating that it is more sensitive to market movements than XLK. However, in recent periods, ADBE's beta has been decreasing, while XLK's beta has been increasing.
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Overall Assessment:
- Based on the analysis, Adobe, Inc. (ADBE) has underperformed the Technology Select Sector SPDR Fund (XLK) in terms of historical performance, annualized returns, and risk-adjusted returns. ADBE exhibits higher volatility and larger drawdowns, indicating a higher risk profile compared to XLK. While ADBE's beta has been decreasing recently, it remains more sensitive to market movements than XLK.
- A significant trend is ADBE's recent underperformance relative to XLK, particularly over the 1-year, 2-year, and 3-year periods. However, the recent one-month performance shows a potential shift, with ADBE outperforming XLK. Investors should closely monitor whether this trend continues.
Peers Price History(as of 2025-05-22)
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Performance Comparison:
- Adobe's historical performance has been mixed compared to Salesforce, Inc. (CRM). While Adobe outperformed Salesforce YTD, for the week, for the month, and for the last 3 months, it underperformed over the 6-month, 1-year, 2-year, and 3-year periods. For example, Adobe's 3-year performance is 1.86%, significantly lower than Salesforce's 78.05%.
- Adobe's performance has been inconsistent relative to Salesforce, with periods of outperformance followed by periods of underperformance.
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Risk and Return Analysis:
- Adobe's annualized returns have been lower than Salesforce, Inc. (CRM) over the 1-year, 2-year, and 3-year periods. For example, Adobe's 3-year annualized return is 0.62%, much lower than Salesforce's 21.2%.
- Adobe's annualized volatility has generally been lower than Salesforce but higher than Microsoft Corp. (MSFT). In Q2 2024, Adobe's volatility was 50.49%, while Salesforce had a volatility of 68.41%, and Microsoft had a volatility of 22.77%.
- Adobe experienced a maximum drawdown of -60.02% on 2022-09-30, while Salesforce had a maximum drawdown of -58.62% on 2022-12-16, and Microsoft had a maximum drawdown of -37.15% on 2022-11-03. This indicates that Adobe and Salesforce experienced more significant peak-to-trough declines than Microsoft.
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Risk-Adjusted Performance:
- Microsoft Corp. (MSFT) generally exhibits higher Sharpe Ratios compared to Adobe and Salesforce, Inc. (CRM), indicating better risk-adjusted returns over the analyzed period.
- The beta values for Adobe, Salesforce, Inc. (CRM), and Microsoft Corp. (MSFT) are generally above 1, indicating that these stocks are more volatile than the market.
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Overall Assessment:
- Adobe's relative performance, risk, valuation, growth, and profitability compared to Salesforce, Inc. (CRM) and Microsoft Corp. (MSFT) is mixed. While Adobe has shown periods of outperformance, it has generally underperformed Salesforce in terms of annualized returns and experienced more significant drawdowns. Microsoft has demonstrated better risk-adjusted returns and lower volatility compared to Adobe and Salesforce.
- A significant trend is the fluctuating volatility of Adobe and Salesforce, while Microsoft has maintained relatively low volatility. This could inform investment decisions by highlighting the need for a more risk-averse approach when considering Adobe and Salesforce compared to Microsoft.
Peers Fundamentals(as of 2025-02-28)
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Market Position and Size:
- Adobe's market capitalization is $176,587.45 million, significantly smaller than Microsoft's $3,380,765.14 million and Salesforce's $271,934.12 million.
- Its revenue ($22,037 million) and EBITDA ($8,996 million) are also substantially lower than Microsoft's ($270,010 million and $151,460 million, respectively) and lower than Salesforce's ($37,895 million and $12,712 million, respectively).
- Adobe's net income ($6,751 million) is slightly greater than Salesforce's ($6,197 million) but significantly lower than Microsoft's ($96,635 million).
- Adobe holds a smaller market position compared to Microsoft and Salesforce, indicating less overall influence and resources within the technology services sector.
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Profitability and Efficiency:
- Adobe's Gross Profit Margin of 88.39% is significantly higher than both Salesforce (70.67%) and Microsoft (69.07%), indicating efficient cost management and strong pricing power.
- Its EBITDA Margin of 40.82% is lower than Microsoft's 56.09% but higher than Salesforce's 33.55%.
- Adobe's Net Profit Margin of 30.63% is lower than Microsoft's 35.79% but higher than Salesforce's 16.35%.
- Adobe demonstrates superior efficiency in generating returns, with a Return on Average Assets of 23.0%, Return on Average Total Equity of 47.28%, and Return on Average Total Capital of 41.19%, all outperforming its peers.
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Financial Health and Stability:
- Adobe's Current Ratio is 1.18, which is greater than Salesforce's 0.99 but less than Microsoft's 1.37, indicating a moderate liquidity position.
- Its Total Debt to Total Equity Ratio is 50.12, higher than Salesforce's 19.73 and Microsoft's 32.63, suggesting a greater reliance on debt financing.
- Adobe's Debt / EBITDA is 0.68, lower than Salesforce's 0.72 but greater than Microsoft's 0.54, indicating manageable debt levels.
- Adobe's Cash Flow / Total Debt ratio is 138.5, which is greater than Salesforce's 124.88 and Microsoft's 125.86, indicating a strong ability to meet its debt obligations.
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Valuation and Market Perception:
- Adobe's Enterprise Value To Sales ratio is 8.68, lower than Salesforce's 8.73 and Microsoft's 10.47.
- Its Enterprise Value To EBITDA is 21.21, lower than Salesforce's 25.79 but greater than Microsoft's 18.51.
- Adobe's Price To Earnings ratio is 27.29, lower than Salesforce's 44.55 and Microsoft's 35.15.
- Adobe's Price to Book Ratio is 13.76, higher than Salesforce's 4.46 and Microsoft's 10.5.
- Adobe's Price To Sales Ratio is 8.24, greater than Salesforce's 7.28 but lower than Microsoft's 12.57.
- These valuation metrics suggest a mixed market perception, with some ratios indicating undervaluation compared to peers.
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Cash Flow and Capital Management:
- Adobe's Net Operating Cash Flow is $9,364 million, lower than Salesforce's $13,092 million and Microsoft's $130,710 million.
- Its Total Capital Expenditure is $301 million, lower than Salesforce's $658 million and Microsoft's $61,345 million.
- Adobe's Free Cash Flow is $9,063 million, lower than Salesforce's $12,434 million and Microsoft's $69,365 million.
- Adobe's cash flow generation is strong relative to its size, and its Cash Conversion Ratio of 0.73 is greater than Salesforce's 0.43 and Microsoft's 0.7.
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Growth and Future Prospect:
- Adobe shows consistently lower growth in Sales/Revenue, EBITDA, Net Income, and Basic Earnings per Share compared to the peer group average.
- It demonstrates superior growth in Free Cash Flow and Free Cash Flow Margin compared to the peer group average.
- Adobe's 3-year and 5-year CAGR figures are generally lower than the peer group average, indicating slower long-term growth compared to its peers.
- However, its most recent year-over-year growth rates are higher than its 5-year CAGRs for Net Income, Basic Earnings per Share, and Free Cash Flow, indicating an acceleration in growth in these areas.
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Potential for Investment:
- Adobe presents a mixed investment profile, with strong profitability, efficiency, and cash flow generation balanced against slower growth rates and a smaller market cap compared to peers.
- Its high gross profit margin and return on equity make it an attractive investment, but its slower growth in key metrics compared to peers could pose a threat to its competitive position in the long term.
- Investors should carefully consider Adobe's growth prospects and valuation relative to its peers before making an investment decision.
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Key Risks and Considerations:
- Slower growth rates in key metrics compared to peers could impact its future market share and competitive position.
- Higher reliance on debt financing compared to peers could increase its financial risk.
- Moderate liquidity position could limit its flexibility to respond to unexpected events or opportunities.
- Market perception of undervaluation could limit its ability to raise capital or make acquisitions.
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Overall Assessment:
- Adobe exhibits strong profitability, efficiency, and cash flow generation, but its growth rates are lagging behind its peers.
- Its financial health is sound, but it needs to focus on accelerating its growth to maintain its competitive position.
- Adobe presents a mixed investment profile, with potential advantages and disadvantages compared to its peers and the broader industry.
Comparison metrics
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