Adobe Systems Incorporated (ADBE)

Discount cash flow analysis

Sell Overvalued by 63.4%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Adobe Systems Incorporated, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $39.78 $39.14 $38.52
Terminal Growth% 0 $40.06 $39.41 $38.78
  +1% $40.34 $39.68 $39.04

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $29.13 (overvalued by 72.97%) - 12 months ago
  • jprendergast created a new valuation of $23.03 (overvalued by 37.91%) - over 7 years ago
  • SethWellbourne created a new valuation of $22.28 (undervalued by 7.01%) - over 8 years ago
  • JBatter created a new valuation of $21.93 (undervalued by 17.4%) - over 8 years ago
  • GordonGekko created a new valuation of $23.22 (undervalued by 24.3%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $39.41 (overvalued by 12.71%) - 9 years ago
  • KiwiEMH created a new valuation of $46.15 (undervalued by 0.57%) - 9 years ago
  • GordonGekko created a new valuation of $35.10 (overvalued by 10.02%) - over 9 years ago
  • ThePeoplesAnalysts created a new valuation of $51.65 (undervalued by 25.94%) - over 9 years ago

Comments

Valuing Adobe

This valuation is supplemented by a Valuecruncher Blog post:

http://blog.valuecruncher.com/2008/08/valuing-adobe/

Based on historic growth rates and analysts estimates we have forecast Adobe’s revenues to grow to $4.6 billion in 2010 representing an annualised growth rate of 13.4% over the next three years. We have projected slight expansion in EBITDA margins from 40% in 2008 to 42% in 2010. We have used a terminal growth rate of 5% and a WACC (discount rate) of 11.25% (based on Aswath Damodaran’s estimate for the computer software/services sector).

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 55,178
Net Debt (Long-term borrowings less cash): -1,993
Equity Value: 23,950
Number of Shares Outstanding: 530,000,000
Calculated value per share: $39.41

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.