Adobe Inc.'s (NDAQ:NASDAQ:ADBE) shares have been outperforming the broader market this year, with a 53% appreciation compared to a 13% increase in the S&P500 index. As of Monday, the company's shares are trading at about $514, which is 13% lower than the estimated fair value of $594, according to Trefis' valuation.
In terms of risk-adjusted returns, Adobe's performance has been superior to the S&P 500 since early 2017. The Sharpe Ratio for Adobe stands at 0.8, higher than the S&P 500's ratio of 0.6 during the same period. This ratio signifies return per unit of risk, indicating that Adobe's performance has been better.
In the third quarter of FY2023, Adobe exceeded market expectations with its financial performance. The company reported a 10% year-on-year increase in revenues to $4.89 billion. The growth was primarily driven by an 11% rise in digital media revenues and a 10% increase in digital experience revenues. Subscription-based revenues constituted nearly 94% of total revenues. The operating margin also improved from 33.5% to 34.7%, resulting in a net income of $1.4 billion, marking a 24% year-on-year increase.
For the first nine months of FY2023, Adobe saw its revenues grow by 10% year-on-year to $14.4 billion, largely due to an 11% increase in subscription-based revenues. However, there was an uptick in total expenses as a percentage of revenues during this period, causing the operating margin to decrease from 37.8% to 34.2%. Despite this, net income rose by 10% year-on-year to $3.9 billion.
Looking ahead, Adobe expects its fourth-quarter revenues and earnings to range between $4.96 billion and $5.03 billion, and $3.10 and $3.15 respectively. The company is forecasting total revenues of $19.38 billion for FY2023. A slight increase in Adobe's net income margin is expected to yield a net income of $5.4 billion and an annual GAAP EPS of $11.63 for the fiscal year. With a P/E multiple slightly above 51x, these earnings would lead to a valuation of $594.
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