Adobe Inc. (ADBE) is an American multinational computer software company headquartered in San Jose, California. It has historically focused upon the creation of multimedia and creativity software products, with a more recent foray towards digital marketing software. Wikipedia
Nature of Business
Adobe Systems Incorporated (Adobe) is a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media.
The Company markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its Website at www.adobe.com. Adobe also distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs), retailers and original equipment manufacturers (OEMs).
Who is Running the Business?
Chief Executive Officer
Mr. Shantanu Narayen is President, Chief Executive Officer, Director of Adobe Systems Inc. He joined Adobe in January 1998 as Vice President and General Manager of Company’s engineering technology group. In January 1999, he was promoted to Senior Vice President, Worldwide Products, and in March 2001 he was promoted to Executive Vice President, Worldwide Product Marketing, and Development. In January 2005, Mr. Narayen was promoted to President and Chief Operating Officer, and effective December 2007, he was appointed Company’s Chief Executive Officer and joined the Company’s Board of Directors. Mr. Narayen serves on the board of directors of Dell Inc. Mr. Narayen holds a B.S. in Electronics Engineering from Osmania University in India, an M.S. in Computer Science from Bowling Green State University and an M.B.A. from the Haas School of Business, University of California, Berkeley.
Chief Financial Officer
Mr. Mark Garrett is Chief Financial Officer, Executive Vice President of Adobe Systems Inc., since February 2007. Mr. Garrett served as Senior Vice President and Chief Financial Officer of the Software Group of EMC Corporation, a products, services and solutions provider for information management and storage, from June 2004 to January 2007, his most recent position since EMC’s acquisition of Documentum, Inc., an enterprise content management company, in December 2003. Mr. Garrett first joined Documentum as Executive Vice President and Chief Financial Officer in 1997, holding that position through October 1999 and then re-joining Documentum as Executive Vice President and Chief Financial Officer in 2002. Mr. Garrett is also a director of Informatica Corporation.
Adobe’s gross margin and net margin was averaging 89.56 and 19.30 percent, respectively, this shows the profit of the company. It also indicates the financial success and viability of Adobe’s products and services. Net margins measure the percentage of revenue that was left after deducting all of the expenses of the company. In other words, it shows how much cash earned during a certain period. Overall, this shows that ADBE is efficient in generating enough revenue from its business operation.
Cash Flow Statement
The cash flow margin average is 0.35 or 35 percent. Cash flow margin is cash from operating activities as a percentage of sales. Cash from operating activities over total sales. On the other hand, Adobe’s free cash flow was averaging $1.49 million. It tells us that the company can of generating enough revenue and has cash left for payment of dividends and for future investment.
The Totem Investment model adopts the investment style which we think applicable to the company, we looked for companies with a strong balance sheet or those with little debt, above average profit margin and ample cash flow. One evaluation style is that, seek out undervalued companies whose stock price are temporarily down, but whose fundamentals are sound in the long run. The philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal.
The sustainable growth rate is 13.04 percent, this implies how fast Adobe Systems Inc can grow without using more funds from creditors or investors, or where the company can keep its operation internally. Meanwhile, the calculated margin of safety was 98.45 percent. The market price as of November 22, 2013, was $57.17 per share.
Adobe Relative Valuation Methods
The relative valuation interpreted the following data: the book value per share average is $10.63, Price to Earnings ratio average was $24.92, and this is the price that the investors are willing to pay for the company’s earnings. The earnings per share average are $1.42, this represents the company’s net earnings allocated to each share of common stock. On the other hand, the return on equity is 14.3 percent; this implies how much profit Adobe generates with the investment that the shareholders’ have invested.
The metrics and methods used have shown that Adobe Systems Inc. is financially stable and sound. Moreover, the profitability ratios and the cash flow margins imply that the company is capable and efficient of generating enough revenue for paying dividends and for future investments. The stock of Adobe Systems Inc. compares the total value with the current price indicates that the company is undervalued. With this, I recommend a BUY on the stock of Adobe Systems, Inc.
Researched and Written by Karla
Edited by Cris