ADOBE INC. Analysis of Revenue and free cash flow to equity (FCFE)

 

 

   About Adobe INC

Adobe INC. is a global technological company with a mission to change the world through personalized digital experiences.

Adobe business is organized into three reportable segments

   a)Digital media

   b)Digital experiences

   c)Publishing and advertising

As one of the largest and most diversified software companies in the world, Adobe INC. empowers everyone — from individuals and small businesses to government agencies and global brands — to design and deliver exceptional digital experiences. Headquartered in San Jose, California, and with a diverse global population of more than 29,000 employees, Adobe INC. achieved revenue of $19.41 billion in fiscal year 2023. Adobe INC. stock is traded on the Nasdaq under the symbol ADBE.

FCFE Details of ADOBE INC shown below, US$ in millions, except per share data, based on values on 09/27/2024

Year	Value	FCFE or Terminal Value	Present Value at 16.87%
0	FCFE0	6,799
1	FCFE1=(FCFE0  x (1+g))	8,584 = 6,799 x (1+30.5%)	7,345
2	FCFE2=(FCFE1  x (1+g))	10,475 = 8,484 x (1+ 26.26%)	7,669
3	FCFE3=(FCFE2  x (1+g))	12,339 = 10,475 x (1+ 22.03%)	7,730
4	FCFE4==(FCFE3  x (1+g))	14,013 = 12,339 x (1+17.80%)	7,511
5	FCFE5=(FCFE4  x (1+g))	15,940= 14,013 x (1+13.57%)	7,299
5	Terminal Value (TV5)	549,347 = 15,940 x (1+13.57%) / (16.86% - 13.57%)	251,959

Intrinsic value of Adobe INC.
Market cap of Adobe INC.	218,445
Intrinsic value of Adobe INC. common stock (per share)	$726.06
Current share price on 09/27/2024	$515.48

 

Required rate of Return

Assumptions

Rate of return on LT Treasury Composite(Rf)	4.12%
Expected rate of return on market portfolio(E(RM)	13.80%
Systematic risk of Intuit Inc. Common stock  (β)	1.32
Required rate of return on Intuit Inc. Common Stock (r) Calculation :  Rf + β(E(RM)- (Rf) = 4.12% +1.32[13.80% - 4.12%]	16.87%

 

FCFE Growth rate (G) Forecast

Adobe INC. H-Model

Year	Value	g
1	g1 (PRAT Model)	30.50%
2	g2 (Linear Interpolation)	26.26%
3	g3 (Linear Interpolation)	22.03%
4	g4 (Linear Interpolation)	17.86%
5	g5 (Single stage model)	13.57%

 

2023 Calculations

Company does not pay dividends, so 100% retention rate

 

Profit margin = 100 × Net income ÷ Net revenue

= 100 × 5,428 ÷ 19,409

= 27.97%

 

Asset turnover = Revenue ÷ Total assets

= 19,409 ÷ 29,779

= 0.65

 

Financial leverage = Total assets ÷ Stockholders’ equity

= 29,779 ÷ 16,518

= 1.80

 

g = Retention rate × Profit margin × Asset turnover × Financial leverage

= 1 × 27.97% × 0.65 × 1.80

= 30.50%

 

Adobe Inc. Analysis on revenue

Subscription revenue is $18984 miilion of total revenue(94% of total revenue) Product revenue is $460 Million(2% of total revenue).Services and other revenue is $665 million(4% of total revenue)

 

 

 

Sources :Form 10K of ADOBE INC for the fiscal year ended December 1,2023, https://www.adobe.com/investor-relations.html, https://www.stock-analysis-on.net