Adobe Inc. Net Income jumped on 52.9% and EBITDA Margin increased slightly on 1.1 pp from 34.2% to 35.3%
12/13/2018 • About Adobe Inc. (
$ADBE) • By InTwits
Adobe Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Adobe Inc. is a fast growth stock: FY2018 revenue growth was 23.7%, 5 year revenue CAGR was 17.4% at FY2018 ROIC 23.3%
- EBITDA Margin is expanding: 35.3% in FY2018 vs. 34.2% in FY2017 vs. 17.5% in FY2014
- Adobe Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 is 6.2%. Average EBITDA Margin for the same period was 30.4%. In FY2018 SBC/Revenue was even higher: 6.8%
- Adobe Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.3%. At the same time it's in pair with industry average of 3.1%
- CAPEX is quite volatile: $1,736m in FY2018, $2,021m in FY2017, $1,189m in FY2016, $1,391m in FY2015, $580m in FY2014
- In the last 5 years the company invested considerably less than D&A: $982m vs. $1,657m. In FY2018 this situation was still the same: CAPEX was 267 while D&A was 346
- The company has highly profitable business model: ROIC is 23.3%
- It operates with medium-size leverage: Net Debt/EBITDA is 0.8x while industry average is -2.2x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Adobe Inc.'s Revenue surged on 23.7%. Revenue growth showed small slowdown in FY18Q4 - it was 22.8% YoY. Revenue growth was accelerating on average by 5.2 pp per annum in FY2014-FY2018. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased slightly on 1.1 pp from 34.2% to 35.3% in FY2018. EBITDA Margin grew at 4.4 pp per annum in the last 5 years.
Gross Margin increased slightly on 0.61 pp from 86.2% to 86.8% in FY2018. Gross Margin stuck to a growing trend at 0.52 pp per annum in FY2014-FY2018. SG&A as a % of Revenue decreased slightly on 1.4 pp from 38.7% to 37.3% in FY2018. SG&A as a % of Revenue declined at -3.9 pp per annum in FY2014-FY2018. Stock Based Compensation (SBC) as a % of Revenue increased slightly on 0.57 pp from 6.2% to 6.8% in FY2018. During the last 5 years SBC as a % of Revenue bottomed in FY2016 at 4.7% and was growing since that time.
Net Income margin increased on 5.5 pp from 23.2% to 28.7% in FY2018. Net Income margin grew at 5.5 pp per annum in FY2014-FY2018. The efficient tax rate was 7.3% in FY2018 while the average for the last five years was 16.4%.
Investments (CAPEX, working capital and M&A)
In FY2018 Adobe Inc. had CAPEX/Revenue of 3.0%. CAPEX/Revenue decreased slightly on 0.90 pp from 3.9% in FY2015 to 3.0% in FY2018. It's average CAPEX/Revenue for the last three years was 3.0%.
Accounts receivable as a % of Revenue decreased on 2.1 pp from 16.7% to 14.6% in FY2018. Accounts payable as a % of Revenue increased on 4.4 pp from 11.2% to 15.6% in FY2018.
Adobe Inc. has spent
$6,314m on M&A in FY2018 which accounts for 69.9% of revenue.
Return on investment
The company operates at high and attractive ROIC (23.3%) and ROE (29.1%). ROIC increased slightly on 2.0 pp from 21.3% to 23.3% in FY2018. ROE increased on 7.7 pp from 21.3% to 29.1% in FY2018. ROIC stuck to a growing trend at 4.8 pp per annum in the last 5 years. ROE followed a growing trend at 6.2 pp per annum in FY2014-FY2018.
Leverage (Debt)
Company's Net Debt / EBITDA is 0.8x and Debt / EBITDA is 1.3x. Net Debt / EBITDA surged on 0.9x from -0.2x to 0.8x in FY2018. Debt jumped on 119% while cash dropped on 28.8%.
Adobe Inc. has good short term financial stability: Interest coverage ratio (ICR) is 31.8x. The company has no short term refinancing risk: short term debt is zero.
Average interest expence paid by the company was 2.2% in FY2018.
Valuation and dividends
The company's trades at EV/EBITDA 34.3x and P/E 41.2x.
Management team
The company's CEO is Shantanu Narayen. Shantanu Narayen has 0 years tenure with the company. CEO total compensation was
$28,397,528 in FY2018 which included
$1,000,000 salary. John F Murphy is a the company's CFO. John F Murphy has spent 0 years at the company.
At the end of financial year the company had 0.31% shares owned by insiders. Insider ownership didn't change in 2018.
The company has 21,357 employees. The number of employees surged on 18.8%. Average revenue per employee in FY2018 was
$422,813 and it increased on 4.1%.
Financial and operational results
FY ended 11/30/2018
Adobe Inc. ($ADBE) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 4,147 | 4,796 | 5,854 | 7,302 | 9,030 | 23.7% |
| Gross Profit | 3,525 | 4,051 | 5,035 | 6,291 | 7,835 | 24.5% |
| SG&A | 2,196 | 2,217 | 2,486 | 2,822 | 3,366 | 19.3% |
| EBITDA | 726 | 1,243 | 1,825 | 2,494 | 3,187 | 27.8% |
| EBIT | 413 | 903 | 1,494 | 2,168 | 2,840 | 31.0% |
| Interest expence | 60 | 64 | 70 | 74 | 89 | 19.9% |
| Tax | 93 | 244 | 266 | 444 | 203 | -54.2% |
| Net Income | 268 | 630 | 1,169 | 1,694 | 2,591 | 52.9% |
| Stock Based Compensation | 334 | 268 | 275 | 451 | 610 | 35.0% |
Balance Sheet
|
|---|
| Cash | 1,117 | 877 | 1,011 | 2,306 | 1,643 | -28.8% |
| Accounts Receivable | 592 | 672 | 833 | 1,218 | 1,316 | 8.0% |
| Accounts Payable | 68 | 93 | 88 | 114 | 186 | 64.0% |
| Short Term Debt | 603 | 0 | 0 | 0 | 0 | |
| Long Term Debt | 911 | 1,907 | 1,892 | 1,881 | 4,125 | 119.2% |
Cash flow
|
|---|
| Capex | 148 | 185 | 204 | 178 | 267 | 49.7% |
| Acquisitions | 30 | 826 | 48 | 460 | 6,314 | 1,273.8% |
Ratios
|
|---|
| Revenue growth | 2.3% | 15.6% | 22.1% | 24.7% | 23.7% | |
| EBITDA growth | -2.4% | 71.1% | 46.9% | 36.7% | 27.8% | |
|
|---|
| Gross Margin | 85.0% | 84.5% | 86.0% | 86.2% | 86.8% | 0.6% |
| EBITDA Margin | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% | 1.1% |
| EBIT Margin | 10.0% | 18.8% | 25.5% | 29.7% | 31.5% | 1.8% |
| SG&A, % of revenue | 52.9% | 46.2% | 42.5% | 38.7% | 37.3% | -1.4% |
| SBC, % of revenue | 8.0% | 5.6% | 4.7% | 6.2% | 6.8% | 0.6% |
| Net Income Margin | 6.5% | 13.1% | 20.0% | 23.2% | 28.7% | 5.5% |
| CAPEX, % of revenue | 3.6% | 3.9% | 3.5% | 2.4% | 3.0% | 0.5% |
|
|---|
| ROIC | 4.8% | 10.2% | 15.9% | 21.3% | 23.3% | 2.0% |
| ROE | 4.0% | 9.1% | 16.2% | 21.3% | 29.1% | 7.7% |
| Net Debt/EBITDA | 0.5x | 0.8x | 0.5x | -0.2x | 0.8x | 0.9x |
| Interest expence / Average debt | 3.9% | 3.8% | 3.7% | 3.9% | 2.2% | -1.8% |
People
|
|---|
| Insider ownership | 0.3% | 0.3% | 0.3% | 0.3% | 0.3% | 0.0% |
| Employees | 12,499 | 13,893 | 15,706 | 17,973 | 21,357 | 18.8% |
| Revenue/Employee, th. $ | 332 | 345 | 373 | 406 | 423 | 4.1% |
Adobe Inc. ($ADBE) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 2,079 | 2,195 | 2,291 | 2,465 | | 23.6% | 23.9% | 24.4% | 22.8% |
| EBITDA | 779 | 775 | 805 | 827 | | 41.7% | 16.3% | 1.9% | -15.2% |
| Net Income | 583 | 663 | 666 | 678 | | 46.3% | 77.1% | 58.8% | 35.2% |
Balance Sheet
|
|---|
| Cash | 2,667 | 2,988 | 1,747 | 1,643 | | 149.5% | 126.9% | -1.5% | -28.8% |
| Short Term Debt | 0 | 0 | 0 | 0 | | | | | |
| Long Term Debt | 1,875 | 1,874 | 1,875 | 4,125 | | -0.5% | -0.8% | -0.8% | 119.2% |
Ratios
|
|---|
| Gross Margin | 87.5% | 87.2% | 87.1% | 85.4% | | 1.7% | 0.7% | 1.4% | -1.1% |
| EBITDA Margin | 37.5% | 35.3% | 35.2% | 33.6% | | 4.8% | -2.3% | -7.8% | -15.0% |
| Net Income Margin | 28.0% | 30.2% | 29.1% | 27.5% | | 4.4% | 9.1% | 6.3% | 2.5% |
Peers in Application Software
Below we provide Adobe Inc. benchmarking against other companies in Application Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (150 companies) | 27.9% | 13.5% | 13.6% | 14.8% | 15.2% |
|---|
| Adobe Inc. ($ADBE) | | 15.6% | 22.1% | 24.7% | 23.7% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (149 companies) | 62.8% | 61.7% | 63.8% | 64.4% | 65.3% |
|---|
| Adobe Inc. ($ADBE) | 85.0% | 84.5% | 86.0% | 86.2% | 86.8% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Intelligent Systems Corporation ($INS) | -51.1% | -54.5% | -5.4% | -12.8% | 33.6% |
| |
|---|
| Median (151 companies) | -10.3% | -10.7% | -5.3% | -4.2% | -3.3% |
|---|
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (152 companies) | 2.8% | 2.7% | 2.9% | 2.3% | 2.4% |
|---|
| Adobe Inc. ($ADBE) | 3.6% | 3.9% | 3.5% | 2.4% | 3.0% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (178 companies) | -14.4% | -13.1% | -9.8% | -11.8% | -9.8% |
|---|
| Adobe Inc. ($ADBE) | 4.8% | 10.2% | 15.9% | 21.3% | 23.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (69 companies) | -1.4x | -1.0x | -0.9x | -0.9x | -0.7x |
|---|
| Adobe Inc. ($ADBE) | 0.5x | 0.8x | 0.5x | -0.2x | 0.8x |
