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Adobe just released Q4 earnings and it was a pretty decent report.

Revenue increased 10% year over year to 4.5 billion and gross margins held strong at 87%.

However, higher operating expenses and higher income tax provision meant that net income declined slightly to 1.18 billion.

And this is a trend that we are seeing across all companies this year as inflation eats into profits.

Adobe also provided guidance for 2023.

They’re expecting total revenue to increase to 19.1 to 19.3 billion dollars which would be a growth of around 17%.

And they expect earnings per share between 10.75 to 11 dollars 5 cents. That would be a growth of around 8%.

And these numbers don’t account for the impact of Adobe’s acquisition of Figma.

So this means Adobe is currently valued around 8 times revenue or 30 times earnings. And that’s slightly lower than the historical average which is closer to 50 times earnings.

Now if you assume Adobe can grow earnings per share 10% a year for the next 10 years and then trade at 25 times earnings, the stock would be worth around $648 in 10 years time and that works out to an investment return of around 7% a year.

Then again, if Adobe can grow earnings 15% per year then trade at 40 times earnings, the investment return jumps to around 17% a year.

So it really depends whether Adobe can match the sort of growth that it delivered in the past and 15% annual growth seems like a stretch.

So overall, Adobe is a quality company but it’s also maturing and it looks relatively fairly valued here.

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