Insights

• Adobe exhibits strong profitability and revenue growth, driven by its leading position in digital media and digital experience solutions.
• The company's liquidity position is a concern, as indicated by the current ratio below 1 and the decreasing trend in the current and quick ratios.
• Increasing long-term debt and a shift towards a more leveraged capital structure could constrain the company's financial flexibility in the future.
• The company's focus on AI and generative AI capabilities is expected to drive future revenue growth and improve operational efficiency.
• Macroeconomic conditions and legal/regulatory risks pose challenges and uncertainties for Adobe's global operations and financial performance.

Analysis

• Revenue - Revenue has shown consistent growth, driven by strong demand for Adobe's digital media and digital experience solutions. - The company's focus on AI and generative AI capabilities is expected to further drive revenue growth in the future. - Revenue growth is decelerating, as indicated by the lower 3-year CAGR compared to the 5-year CAGR.
  • Profitability
    • Adobe exhibits strong profitability, with return on assets, return on equity, and return on capital significantly exceeding industry averages.
    • Gross profit margin, net profit margin, and EBITDA margin are also significantly higher than the industry average.
    • Profitability margins are trending downward, which could be a concern if this trend continues.
  • Liquidity
    • The current ratio is below 1, indicating potential liquidity concerns, as current liabilities exceed current assets.
    • The quick ratio is also below 1, further highlighting the potential liquidity issues.
    • The decreasing trend in the current and quick ratios suggests a worsening liquidity position.
  • Solvency
    • Long-term debt is increasing significantly, which could increase financial leverage and interest expense.
    • The total debt to total equity ratio is increasing, indicating a shift towards a more leveraged capital structure.
    • The debt / EBITDA ratio is low compared to the industry average, suggesting that the company has the capacity to service its debt.
  • Operational Efficiency
    • Decreasing accounts receivable might suggest improved efficiency in collecting payments.
    • The company's focus on AI and generative AI capabilities is expected to improve operational efficiency.
    • Capital expenditures are increasing, suggesting investments in long-term assets and new technologies.
  • Cash Flow Analysis - Net operating cash flow has been positive but volatile, influenced by changes in working capital and other factors. - Free cash flow has been consistently positive, indicating the company's ability to generate cash from its operations. - The company has been actively repurchasing shares to return value to shareholders, which has resulted in negative financing cash flow.
  • Risk Factors
    • The decreasing current ratio and increasing long-term debt are potential red flags that warrant close monitoring.
    • Macroeconomic conditions, including inflation, interest rates, and geopolitical tensions, pose challenges and uncertainties for Adobe's global operations and financial performance.
    • Legal and regulatory risks, including ongoing lawsuits and evolving privacy/security requirements, represent significant exposures that could impact the business.
  • Future Outlook
    • Future revenue growth is expected to continue, driven by the company's strong market position and innovative products.
    • Profitability margins are projected to remain stable or improve, as the company continues to manage its costs effectively.
    • The company's ability to generate strong cash flow will be crucial to managing its debt obligations and funding future growth initiatives.

Benchmarks (as of 2025-06-27)

• Performance Comparison:
  • Adobe, Inc. (ADBE) has consistently underperformed the Technology Select Sector SPDR Fund (XLK) across all time periods analyzed. For instance, over the past year, ADBE's return was -31.1% compared to XLK's 10.77%, a significant underperformance of -41.87%. Similarly, over the past three years, ADBE's annualized return was only 1.77% compared to XLK's 26.43%, representing an underperformance of -24.66%. This trend of underperformance is evident across all measured periods, indicating a persistent struggle for ADBE to match the returns of its benchmark.
• Risk and Return Analysis:
  • The annualized returns analysis reveals that ADBE has provided lower returns compared to XLK over the past one, two, and three years. For example, the three-year annualized return for ADBE is 1.77%, significantly lower than XLK's 26.43%.
  • The annualized volatility analysis indicates that ADBE has generally been more volatile than XLK. Throughout the analyzed period, ADBE's volatility consistently exceeded that of XLK, suggesting that ADBE's price experiences larger and more frequent swings.
  • The drawdown figures show that ADBE has experienced more severe declines from previous peaks compared to XLK. The maximum drawdown for ADBE was -60.02% on 2022-09-30, while the maximum drawdown for XLK was -33.56% on 2022-10-12. This indicates that ADBE carries a higher risk profile, with the potential for substantial losses during market downturns.
• Risk-Adjusted Performance:
  • The Sharpe Ratio analysis reveals that ADBE has generally offered lower risk-adjusted returns compared to XLK. Throughout the analyzed period, ADBE's Sharpe Ratios were consistently lower than those of XLK, indicating that investors were not adequately compensated for the level of risk associated with ADBE. As of Q2 2025, ADBE's Sharpe ratio is -0.85, while XLK's Sharpe ratio is 0.51.
  • The Beta analysis indicates that ADBE's sensitivity to market movements has decreased over time. While ADBE's beta was initially higher than 1, it has decreased to 0.95 as of Q2 2025, suggesting that ADBE has become less volatile than the market. In contrast, XLK's beta has remained relatively stable, fluctuating between 1.24 and 1.64, indicating that XLK continues to be more sensitive to market movements.
• Overall Assessment:
  • Based on the comparative 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 has also exhibited higher volatility and more severe drawdowns compared to XLK, indicating a higher risk profile. While ADBE's sensitivity to market movements has decreased over time, its overall performance remains weaker than that of XLK. These insights suggest that investors seeking higher returns with lower risk may find XLK to be a more attractive investment option compared to ADBE.

Peers Price History(as of 2025-06-27)

• Performance Comparison:

  • Adobe (ADBE) has generally underperformed both Salesforce (CRM) and Microsoft (MSFT) across various time periods. For instance, over the past year, Adobe's stock has declined by 31.1%, while Salesforce has increased by 7.51% and Microsoft has increased by 9.42%. This trend extends over longer periods as well, with Adobe showing significantly lower returns over the past two and three years compared to its peers. In the short term, Adobe has shown some periods of outperformance, such as over a 6-month period where it outperformed Salesforce by 4.85%. However, Microsoft has consistently outperformed Adobe in most periods.

• Risk and Return Analysis:

  • Adobe's annualized returns are lower than both Salesforce and Microsoft. For example, the 3-year annualized return for Adobe is 1.77%, compared to 18.67% for Salesforce and 25.57% for Microsoft. This indicates that Adobe has provided lower returns to investors compared to its peers.
  • Adobe's annualized volatility has been high, particularly in late 2022 and early 2023. While volatility has decreased more recently, it remains relatively high compared to Microsoft. This suggests that Adobe's stock price experiences larger fluctuations, making it a riskier investment.
  • Adobe experienced a maximum drawdown of -60.02% on 2022-09-30, which is larger than the maximum drawdown experienced by Salesforce (-58.62% on 2022-12-16) and significantly larger than Microsoft (-37.15% on 2022-11-03). This indicates that Adobe's stock is more susceptible to significant declines from previous peaks, reflecting a higher risk profile.

• Risk-Adjusted Performance:

  • Adobe's Sharpe Ratios are frequently negative, especially in earlier periods, indicating poor risk-adjusted performance. In contrast, Microsoft generally exhibits higher Sharpe Ratios, suggesting better risk-adjusted returns. For example, in Q2 2025, Adobe has a Sharpe Ratio of -0.85, while Microsoft has a Sharpe Ratio of 0.51.
  • Adobe's Beta values are generally above 1, indicating that the stock is more volatile than the market. However, the Beta values have been decreasing over time. As of Q2 2025, Adobe has a Beta of 0.95, Salesforce has a Beta of 1.08, and Microsoft has a Beta of 0.94. This suggests that Adobe and Microsoft are now less volatile than the market, while Salesforce remains slightly more volatile.

• Overall Assessment:

  • Based on the data, Adobe (ADBE) has underperformed Salesforce (CRM) and Microsoft (MSFT) in terms of historical performance, annualized returns, and risk-adjusted returns. Adobe's higher volatility and larger drawdowns indicate a higher risk profile compared to its peers, particularly Microsoft. While Adobe's Beta has decreased, suggesting reduced market sensitivity, its negative Sharpe Ratios and lower returns make it a less attractive investment option compared to Salesforce and Microsoft. Investors seeking higher returns and lower risk may find Microsoft to be a more suitable choice, while Salesforce offers a slightly higher risk-reward profile compared to Adobe.

Peers Fundamentals(as of 2025-05-31)

1. Market Position and Size:

   • Adobe's market capitalization is $163,669.09 million, which is less than Salesforce's $261,389.52 million and significantly less than Microsoft's $3,686,093.89 million.
   • Adobe's revenue ($22,601 million) is also less than Salesforce ($38,591 million) and Microsoft ($270,010 million). Similarly, Adobe's EBITDA ($9,196 million) is less than Salesforce ($12,965 million) and Microsoft ($151,460 million). Adobe's net income ($6,869 million) is greater than Salesforce ($6,205 million) but significantly less than Microsoft ($96,635 million).
   • Adobe is the smallest company by market capitalization compared to Microsoft and Salesforce. While it generates substantial revenue, EBITDA, and net income, it is dwarfed by Microsoft's scale. Adobe's market position is strong within its niche of digital media and digital experience solutions, but it is not as diversified as Microsoft.

2. Profitability and Efficiency:

   • Adobe's Gross Profit Margin of 88.51% is significantly greater than Salesforce's 70.84%, Microsoft's 69.07%, and the industry average of -52.08%.
   • Adobe's EBITDA Margin of 40.69% is greater than Salesforce's 33.6% but less than Microsoft's 56.09%. It is significantly greater than the industry average of -5474.48%.
   • Adobe's Net Profit Margin of 30.39% is greater than Salesforce's 16.08% but less than Microsoft's 35.79%. It is significantly greater than the industry average of -4901.43%.
   • Adobe's profitability metrics are strong, especially its gross profit margin. While its EBITDA and net profit margins are lower than Microsoft's, they are still competitive and significantly above industry averages. This indicates efficient cost management and strong pricing power.
   • Adobe's Return on Average Assets is 23.64%, which is greater than Salesforce's 6.37% and Microsoft's 18.46%, and significantly greater than the industry average of -16.45%.
   • Adobe's Return on Average Total Equity is 52.25%, which is significantly greater than Salesforce's 10.31% and Microsoft's 33.61%, and also significantly greater than the industry average of -65.27%.
   • Adobe's Return on Average Total Capital is 42.62%, which is significantly greater than Salesforce's 10.88% and Microsoft's 31.06%, and also significantly greater than the industry average of -15.71%.
   • Adobe's Return On Average Invested Capital is 36.83%, which is significantly greater than Salesforce's 8.68% and Microsoft's 25.87%, and also significantly greater than the industry average of -32.46%.
   • Adobe demonstrates superior efficiency in generating returns compared to its peers and the industry. Its high returns on assets, equity, and capital indicate effective management and efficient use of resources.

3. Financial Health and Stability:

   • Adobe's Current Ratio is 0.99, which is equal to Salesforce's 0.99 and less than Microsoft's 1.37, and also less than the industry average of 2.88.
   • Adobe's Quick Ratio is 0.99, which is equal to Salesforce's 0.99 and less than Microsoft's 1.36, and also less than the industry average of 2.84.
   • Adobe's Total Debt to Total Equity Ratio is 57.33, which is significantly greater than Salesforce's 19.81 and Microsoft's 32.63, but less than the industry average of 84.94.
   • Adobe's Debt / EBITDA is 0.67, which is slightly less than Salesforce's 0.7 and greater than Microsoft's 0.54, and also less than the industry average of 6.04.
   • Adobe's liquidity ratios are slightly below 1, indicating potential short-term liquidity concerns. Its debt-to-equity ratio is higher than its peers, but its debt/EBITDA ratio is low, suggesting it can comfortably service its debt.

4. Valuation and Market Perception:

   • Adobe's Enterprise Value To Sales is 7.92, which is greater than Salesforce's 6.61 and less than Microsoft's 10.47, and also significantly greater than the industry average of -19.81.
   • Adobe's Enterprise Value To EBITDA is 19.41, which is slightly less than Salesforce's 19.46 and greater than Microsoft's 18.51, but significantly less than the industry average of 115.65.
   • Adobe's Price To Earnings is 24.67, which is less than Salesforce's 42.77 and Microsoft's 38.32, and also significantly less than the industry average of 462.74.
   • Adobe's Price to Book Ratio is 14.39, which is significantly greater than Salesforce's 4.32 and greater than Microsoft's 11.45, and also greater than the industry average of 8.1.
   • Adobe's Price To Sales Ratio is 7.32, which is greater than Salesforce's 6.87 and less than Microsoft's 13.7, and also significantly less than the industry average of 54.74.
   • Adobe's valuation metrics suggest it is reasonably valued compared to its peers. Its P/E ratio is lower than both Salesforce and Microsoft, indicating it may be undervalued relative to its earnings.

5. Cash Flow and Capital Management:

   • Adobe's Net Operating Cash Flow is $9,615 million, which is less than Salesforce's $13,321 million and Microsoft's $130,710 million.
   • Adobe's Total Capital Expenditure is $432 million, which is less than Salesforce's $674 million and significantly less than Microsoft's $61,345 million.
   • Adobe's Free Cash Flow is $9,183 million, which is less than Salesforce's $12,647 million and Microsoft's $69,365 million.
   • Adobe's cash flow generation is strong, but it is smaller in scale compared to Microsoft and Salesforce. Its lower capital expenditure reflects its business model, which is less capital-intensive than Microsoft's.

6. Growth and Future Prospect:

   • Adobe shows consistently higher growth in Net Income and Basic Earnings per Share compared to the peer group average.
   • Adobe's Free Cash Flow Margin shows significant year-to-year fluctuations, with a standard deviation of 22.55%. The most recent year shows a 31.69% increase, while the previous year saw a -23.52% decrease.
   • Adobe's 3-year CAGR for Sales/Revenue (10.75%) is less than its 5-year CAGR (13.48%), indicating a deceleration in revenue growth over the past three years. The peer group shows a similar trend, with a 3-year CAGR of 11.35% and a 5-year CAGR of 14.64%. The difference between ADBE's 3-year and 5-year CAGR is -2.73%, while the peer group's difference is -3.3%.
   • Adobe's superior growth is primarily in profitability metrics (Net Income, Basic Earnings per Share) and Free Cash Flow.
   • Adobe shows inferior growth in revenue and EBITDA compared to the peer group average.
   • Adobe's growth rates have been fluctuating, particularly in Free Cash Flow Margin. The most recent year shows a strong increase in Free Cash Flow and Free Cash Flow Margin, suggesting a potential acceleration.
   • Adobe's growth is concentrated in profitability and cash flow metrics, with revenue growth lagging behind. The higher debt levels could pose a risk if revenue growth does not accelerate to support debt servicing.

7. Potential for Investment:

   • Adobe presents a mixed investment perspective. Its high profitability, efficient returns, and strong earnings per share make it an attractive investment. However, its lower liquidity, higher leverage, and slower revenue growth pose potential risks. Compared to its peers, Adobe may be undervalued based on its P/E ratio, but its slower revenue growth could limit its long-term growth potential. Investors should carefully consider Adobe's financial health and competitive positioning before making an investment decision.

8. Key Risks and Considerations:

   • Lower Liquidity: Adobe's current and quick ratios are below 1, indicating potential short-term liquidity concerns.
   • Higher Leverage: Adobe's total debt to equity ratio is higher than its peers, suggesting a more leveraged balance sheet.
   • Slower Revenue Growth: Adobe's revenue growth has been lagging behind its peers, which could impact its long-term competitive position.

9. Overall Assessment:

   • Adobe exhibits strong profitability and efficient returns, but its liquidity and leverage pose potential concerns. Its high gross profit margin and superior returns on assets, equity, and capital indicate effective management and efficient use of resources. However, its lower liquidity ratios and higher debt-to-equity ratio suggest potential short-term financial risks. While its earnings per share are strong, its revenue growth has been slower than its peers. Overall, Adobe's financial health is good, but it needs to address its liquidity and leverage to ensure long-term stability.