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Adobe Inc.
ADBE Details
Adobe Inc. (NASDAQ: ADBE) is one of the world’s largest diversified software companies that provides products and services for content creation, document management, and digital marketing and advertising to creative professionals. Its operating segments are 1) Digital Media, its flagship product is Creative Cloud that enables users to create, publish, promote, and monetize their digital content, 2) Digital Experience, which offers services for creation and management of digital advertising and marketing, and 3) Publishing and Advertising, catering to a wide range of authoring and publishing needs and original equipment manufacturer (OEMs) printing businesses. As of July 08, 2021, the company’s market capitalization stood at USD 288.59 billion.
Attempt To Protect Shareholder’s Interest: On May 28, 2021, ADBE recommended its shareholders to reject the unsolicited “mini-tender” offer by Tutanota LLC for the purchase of one million common shares of the company at an offer price of USD 565.0 per share. The recommendation was based on the fact that Tutanota’s offer was priced below the conditional market price of USD 565, i.e., the offer to purchase shares at USD 565 would have been valid only if the closing price exceeded USD 565 per share on the last trading day before the offer expired. This meant that Adobe stockholders who participated in the offer earned a lower-than-market price for their shares.
Q2FY21 Results: ADBE reported total revenues of USD 3.84 billion for Q2FY21 (ending June 04, 2021) compared to USD 3.13 billion in Q2FY20, registering a growth of 22.60% YoY. The Digital Media segment, which accounted for 72.67% of the total revenue in Q2FY21 increased by 24.87% YoY, driven by higher subscription revenue from Creative Cloud and Document Cloud. The impact of improvement in topline percolated down to operating performance wherein the company achieved YoY growth of 38.39% in Q2FY21 to USD 1.41 billion as compared to USD 1.02 billion in Q2FY20, despite a 16.97% YoY rise in operating expenses. ADBE reported a net income of USD 1.12 billion in Q2FY21 vs USD 1.10 billion in Q2FY20.
Key Risks: ADBE generates a majority of its revenue from users' subscriptions to its products and services. However, the user renewal rate is generally volatile and uncontrollable, and any prolonged decline in renewal rate or decrease in customer base could harm the financials of the company. In addition, around 42% of the company’s revenue in FY20 was in currencies other than USD, thus exposing it to currency fluctuations. Furthermore, some of ADBE’s data centers are managed by third parties which are used for hosting and content delivery of its services. Any discord with the third parties could adversely impact the operations of the company.
Outlook: In Q3FY21, ADBE expects to generate revenue of ~USD 3.88 billion, along with an EPS of USD 2.27 (GAAP). It also expects to achieve YoY growth of 22% and 21% in its Digital Media and Digital Experience segments, respectively.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
ADBE Daily Technical Chart (Source: REFINITIV)
Stock Recommendation: ADBE has increased 21.23% and 26.84% in the past 3 and 6 months, respectively, and is currently close to the higher band of the 52-week range of USD 416.29 to USD 607.67. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 79.75. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 509.39. Considering the significant uptick in the stock price, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 605.95, up by 0.03% as of July 08, 2021.
* All forecasted figures and Industry Information have been taken from REFINITIV.
* The reference data in this report has been partly sourced from REFINITIV.
Intuit Inc.
INTU Details
Intuit Inc. (NASDAQ: INTU) is a software company that develops financial management and compliance tools for small businesses and self-employed individuals. It has also developed dedicated tax products for accounting professionals. Its key offerings are 1) TurboTax, which assists users in filing their income tax, 2) QuickBooks, an online service and desktop software which helps small businesses in managing business and finances, 3) Mint, a software for managing personal finance, and 4) Credit Karma, which provides free credit score and platform for shopping of loans and insurance. As of July 08, 2021, the company’s market capitalization stood at USD 138.29 billion.
Progressing Towards Prosperity: On June 22, 2021, INTU launched the Prosperity Accelerator: AI in collaboration with Highline Beta, which is a five-month program that leverages artificial intelligence (AI) to help AI-focused startups in developing strategies to overcome financial complications caused by the COVID-19 pandemic.
Q3FY21 Results: INTU reported total revenues of USD 4.17 billion for Q3FY21 (ended April 30, 2021) compared to USD 3.0 billion in Q3FY20, registering a growth of 39.01% YoY, primarily due to a 33.83% YoY increase in Consumer segment revenue driven by a shift in the timing of tax filing seasons for FY21 and FY20 and the acquisition of Credit Karma in December 2020. The impact of the strong performance reflected in the company's operating performance, wherein it reported an upside of 35.46% YoY in its operating income to USD 1.91 billion in Q3FY21 as compared to USD 1.41 billion in Q3FY20. Net income rose 35.06% YoY in Q3FY21 to USD 1.46 billion vs USD 1.08 million in Q3FY20.
Key Risks: INTU depends on the intellectual property of third parties for many of its product offerings, and any unfavorable terms or delay in license renewals of such third-party technology could disrupt its operations. In addition, it depends on third-party distributors, accountants, and others to deliver its offerings to customers. Should the disruption in the company’s operations continue due to the COVID-19 pandemic, it could impair its results. Furthermore, INTU operates in a tax preparation industry that is subject to strict federal and state regulations. Change in requirements of even one state could significantly harm its operations.
Outlook: In FY21, INTU forecasts its revenues to range between USD 9.36 - 9.40 billion, representing a 15-17% growth. It expects to clock operating income to the tune of USD 2.35 - 2.37 billion, thus achieving an upturn of 8-9% YoY, with an EPS of USD 6.96 - 7.01. The revenue guidance rides on the company’s projection to attain an increment of 14% in Small Business and Self-Employed Group, 11-12% in Consumer Group, and 2% in ProConnect Group, together with revenues of USD 775 - 785 million from Credit Karma.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
INTU Daily Technical Chart (Source: REFINITIV)
Stock Recommendation: INTU stock price has increased 23.04% and 37.29% in the past 3 and 6 months, respectively, and is currently leaning towards the higher band of the 52-week range of USD 280.99 to USD 508.63. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 82.38. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 421.54. Considering the consistent uptick in the stock price, we believe the current share price sufficiently reflects the robust business fundamentals and have chosen to remain on the sidelines. We, therefore, recommend an “Expensive” rating on the stock at the closing price of USD 506.09 as of July 08, 2021.
* All forecasted figures and Industry Information have been taken from REFINITIV.
* The reference data in this report has been partly sourced from REFINITIV.
Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.
Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.
Past performance is not a reliable indicator of future performance.
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