Diversified software company Adobe Inc. (ADBE) reported record revenue and operating income for the fourth quarter and fiscal year 2022 ended December 2, 2022. ADBE achieved revenue of $17.61 billion and a non-GAAP operating income of $7.95 billion in fiscal 2022. The company’s solid financial performance drove record operating cash flows of $7.84 billion in the year.

ADBE’s net new Digital Media Annualized Recurring Revenue (ARR) came in at $576 million. The company exited the quarter with a Digital Media ARR of $13.97 billion. Net new Digital Media ARR during the fiscal year was $1.91 billion. The company’s record Digital Media net new ARR and strong Adobe Experience Platform bookings drove its business momentum.

“Strong demand for our offerings, industry-leading innovation and track record of top-and bottom-line growth set us up to capture the massive opportunities in 2023 and beyond,” said Dan Durn, ADBE’s executive vice president and CFO. The company also issued strong guidance for the fiscal year 2023. It expects total revenue of $19.10 billion to $19.30 billion and non-GAAP earnings per share of $15.15-15.45.

ADBE’s trailing-12-month gross profit margin of 87.70% is 77% higher than the 49.54% industry average. Its trailing-12-month EBITDA margin of 39.49% is 236.3% higher than the 11.74% industry average. Likewise, the stock’s trailing-12-month net income of 27.01% is 732.2% higher than the industry average of 3.25%.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 32.97%, 19.98%, and 17.51% compare to the industry averages of 5.00%, 3.24%, and 1.52%, respectively.

Shares of ADBE have gained 20.7% over the past three months to close the last trading session at $335.09.

Here is what could influence ADBE’s performance in the upcoming months:

Recent Positive Developments

On October 18, ADBE shared the latest innovations for Adobe Express, the template-based web and mobile tool that lets anyone create, edit, customize, schedule, and share standout content. Moreover, workflows across Adobe Express and Creative Cloud apps deliver professional-looking content. Adobe Express now reaches nearly 43 million K-12 teachers and students globally.

In the same month, ADBE announced the expansion of collaboration tools with Adobe Creative Cloud and Document Cloud, allowing new workflows that empower creators to meet growing content demand across various platforms. Photoshop and illustrator introduced new share-for-review collaboration capabilities.

Solid Financials

In the fiscal fourth quarter ended December 2, 2022, ADBE’s total revenue increased 10.1% year-over-year to $4.53 billion. Its gross profit grew 9.8% year-over-year to $3.96 billion. The company reported a non-GAAP operating income of $2.02 billion, up 8.9% year-over-year. Its non-GAAP net income increased 9.1% year-over-year to $1.68 billion.

Furthermore, the company’s cash inflows from operating activities came in at $2.33 billion, a 13.5% increase year-over-year.

Favorable Analyst Estimates

Analysts expect ADBE's revenue for the fiscal 2023 first quarter (ending February 2023) to come in at $4.62 billion, representing an increase of 8.5% year-over-year. The consensus EPS estimate of $3.68 for the ongoing quarter indicates a 9.1% year-over-year increase. It’s no surprise that the company has surpassed the consensus EPS estimates in each of the trailing four quarters.

In addition, ADBE’s revenue and EPS for the fiscal year 2023 (ending November 2023) are expected to rise 9.5% and 11.7% year-over-year to $19.27 billion and $15.32, respectively. Also, analysts expect the company’s revenue and EPS for the next fiscal year to grow 12.2% and 14.3% year-over-year to $21.63 billion and $17.51, respectively.

POWR Ratings Show Promise

ADBE's strong fundamentals are reflected in its POWR Ratings. The stock's overall B rating translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADBE has a grade of A for Quality, in sync with its higher-than-industry profitability metrics. In addition, it has a B grade for Sentiment, consistent with analysts’ solid revenue and earnings growth estimates.

ADBE is ranked #29 out of 137 stocks in the Software-Application industry.

Beyond what I have stated above, we have also given ADBE grades for Growth, Value, Stability, and Momentum. Get access to all ADBE ratings here.

Bottom Line

ADBE reported solid financials for its fourth quarter and fiscal year 2022. The company is well-positioned to capture numerous opportunities in the upcoming quarters due to strong demand for its product offerings, continued innovation, and a track record of top-and-bottom-line growth.

“Our market opportunity, unparalleled innovation, operational rigor and exceptional talent position us well to drive our next decade of growth,” said Shantanu Narayen, chairman, and CEO of Adobe.

Given the company’s solid financials, higher-than-industry profitability, and promising growth prospects, we think it could be wise to invest in the stock now.

How Does Adobe Inc. (ADBE) Stack up Against Its Peers?

ADBE has an overall POWR Rating of B. One could also check out these other stocks within the Software-Application industry with an A (Strong Buy) rating: Commvault Systems, Inc. (CVLT), eGain Corporation (EGAN), and Progress Software Corporation (PRGS).

ADBE shares fell $0.89 (-0.27%) in premarket trading Wednesday. Year-to-date, ADBE has declined -41.06%, versus a -18.34% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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