Adobe Inc - Strong demand for its design software

21 Dec 2022
  • 4Q22 results were in line with expectations. FY22 revenue/PATMI was at 100% of our forecasts.
  • Creative Cloud sales rose 8% YoY to US$2.7bn, driven by continued demand for its creative design software tools. Document Cloud sales grew 16% YoY to US$619mn due to its PDF capabilities and growth in e-signature transactions within Acrobat.
  • We lower our FY23e revenue/PATMI by 4%/6% due to macroeconomic uncertainty and FX headwinds. We maintain a BUY recommendation with a reduced DCF target price of US$408 (prev. US$420), a WACC of 7.1%, and a terminal growth rate of 4.0%. Adobe enjoys tailwinds from digital transformation of paper-based processes, explosion in digital content creation and continued shift to the cloud.



The Positives

+ Strong growth across business segments. In 4Q22, revenue grew 10% YoY (14% in constant currency) to US$4.5bn, which was in line with our estimates. The growth was driven by 10%/14% YoY increases in Digital Media and Digital Experience revenues to US$3.3bn and US$1.2bn, respectively. In the Digital Media segment, Creative Cloud revenue grew 8% YoY to US$2.7bn driven by strong demand for its design software tools (Photoshop, Adobe Express, and from creative professionals and smaller and medium-sized enterprises. Document Cloud revenue grew 16% YoY to US$619mn due to its PDF capabilities and growth in e-signature transactions within Acrobat. Digital Experience revenue, which includes analytics and marketing software, increased by 14% YoY to US$1.2bn. Key customer wins include Meta, Deloitte, and Delta Air Lines.


+ Maintained high margins. In 4Q22, Adobe reported an impressive gross margin of 87%. This is mainly because the company generates the majority of its sales (>90%) from recurring subscription revenue. Adj. operating margin (excluding stock-based compensation expense and amortization of intangibles) was 45%, which was in line with 4Q21. Adobe generated US$2.2bn in free cash flow in 4Q22. This translates to a 49% free cash flow margin.


The Negatives

– FX continues to be a headwind. Adobe’s revenue was negatively impacted due to the strengthening of the dollar against several key foreign currencies, including the Euro, British pound, and Japanese yen. In 4Q22, FX headwind to revenue was about US$175mn (15% of PATMI). Adobe projects nearly US$750mn headwind from FX in FY23e.

About the author

Ambrish Shah
US Technology Analyst (Software/Services)

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you


This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  


Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066