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ADBE · Health
Date: 2026-03-20 | Current Price: ~$247 | Market Cap: $101.4B Sector: Technology | Industry: Software - Application Fiscal Year End: November
DATA AVAILABILITY NOTE
Yahoo Finance returned 4 fiscal years of financial statements (FY2022-FY2025, ending Nov 30 each year). This limits 5-year CAGR calculations. Where only 3-year data is available, I note it explicitly. FY2021 balance sheet returned zeros -- treated as unavailable.
1. Free Cash Flow (FCF)
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Operating Cash Flow | $7,838M | $7,302M | $8,056M | $10,031M |
| Capital Expenditures | ($442M) | ($360M) | ($183M) | ($179M) |
| Free Cash Flow | $7,396M | $6,942M | $7,873M | $9,852M |
| FCF Margin (FCF/Rev) | 42.0% | 35.8% | 36.6% | 41.4% |
| YoY Growth | -- | -6.1% | +13.4% | +25.1% |
FCF CAGR (3-year, FY2022-FY2025): (9,852/7,396)^(1/3) - 1 = 10.0%
Note: FY2023 FCF dipped due to higher tax payments ($1.854B vs $778M in FY2022). Underlying cash generation power improved markedly in FY2025. CapEx has also fallen sharply ($442M to $179M), which flatters FCF -- this is a capital-light software model.
2. Revenue Growth
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Total Revenue | $17,606M | $19,409M | $21,505M | $23,769M |
| YoY Growth | -- | +10.2% | +10.8% | +10.5% |
Revenue CAGR (3-year, FY2022-FY2025): (23,769/17,606)^(1/3) - 1 = 10.5%
Remarkably consistent ~10-11% annual growth. For a $20B+ revenue software company, this is solid but not exceptional. The question is whether AI monetization accelerates this or if saturation flattens it.
3. Net Income Growth
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Net Income | $4,756M | $5,428M | $5,560M | $7,130M |
| Net Margin | 27.0% | 28.0% | 25.9% | 30.0% |
| Diluted EPS | $10.10 | $11.82 | $12.36 | $16.70 |
| YoY NI Growth | -- | +14.1% | +2.4% | +28.2% |
| YoY EPS Growth | -- | +17.0% | +4.6% | +35.1% |
Net Income CAGR (3-year, FY2022-FY2025): (7,130/4,756)^(1/3) - 1 = 14.4% EPS CAGR (3-year, FY2022-FY2025): (16.70/10.10)^(1/3) - 1 = 18.3%
FY2024 net income was depressed by a $1B restructuring/M&A charge (Figma termination fee). Normalized income that year was $6.346B. FY2025 shows a clean, strong year.
EPS growth outpaces net income growth due to aggressive buybacks (see below). The ~4% annual share reduction is additive.
4. Revenue per Share & FCF per Share
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Diluted Shares (M) | 471 | 459 | 450 | 427 |
| Revenue/Share | $37.38 | $42.29 | $47.79 | $55.67 |
| Rev/Share YoY | -- | +13.1% | +13.0% | +16.5% |
| FCF/Share | $15.70 | $15.12 | $17.50 | $23.07 |
| FCF/Share YoY | -- | -3.7% | +15.7% | +31.8% |
Revenue/Share CAGR (3yr): 14.2% FCF/Share CAGR (3yr): 13.7%
Per-share metrics tell a better story than absolute numbers because buybacks are boosting per-share growth by ~3-4pp annually. Revenue/share has compounded at 14.2% -- strong.
5. Debt-to-Assets
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Total Debt | $4,633M | $4,080M | $6,056M | $6,648M |
| Total Assets | $27,165M | $29,779M | $30,230M | $29,496M |
| Debt/Assets | 17.1% | 13.7% | 20.0% | 22.5% |
| Cash + ST Investments | $6,096M | $7,842M | $7,886M | $6,595M |
| Net Debt | ($1,463M) | ($3,762M) | ($1,830M) | $53M |
| Debt/Equity | 33.0% | 24.7% | 42.9% | 57.2% |
Trend: Deteriorating. Debt has risen from $4.1B to $6.6B while cash has fallen. Adobe issued ~$4B in new debt over FY2024-2025 to fund its aggressive buyback program. Net debt has flipped from negative (net cash position) to roughly neutral. Debt/equity has nearly doubled from 24.7% to 57.2% in two years.
This isn't alarming for a company generating $10B in OCF, but the trajectory deserves monitoring. Adobe is leveraging its balance sheet to fund buybacks -- a common playbook, but it reduces financial flexibility.
6. Shares Outstanding Trajectory
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Diluted Shares (M) | 471 | 459 | 450 | 427 |
| YoY Change | -- | -2.5% | -2.0% | -5.1% |
| Buyback Spend | $6,550M | $4,400M | $9,500M | $11,281M |
| SBC (Cash Flow) | $1,440M | $1,718M | $1,833M | $1,942M |
| Net Buyback (Buyback - SBC) | $5,110M | $2,682M | $7,667M | $9,339M |
| Shares Retired (M) | -- | ~12 | ~9 | ~23 |
3-Year Share Reduction: 471M to 427M = -9.3% total, or -3.2% annually
Buyback program has been aggressive, especially in FY2024-2025 when Adobe spent nearly $21B on repurchases. FY2025 alone retired ~23M shares (5.1% of float). However, SBC offsets roughly 17-20% of gross buybacks. Net buyback effectiveness is strong but not free.
SBC as % of FCF:
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| SBC | $1,440M | $1,718M | $1,833M | $1,942M |
| FCF | $7,396M | $6,942M | $7,873M | $9,852M |
| SBC/FCF | 19.5% | 24.7% | 23.3% | 19.7% |
SBC runs at ~20-25% of FCF. This is moderate for enterprise software (better than Salesforce, worse than Apple). The trend is stable to slightly improving as FCF grows faster than SBC. Still, ~$2B/year in dilution costs matter.
7. Capital Allocation Breakdown
| Category | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Share Buybacks | $6,550M | $4,400M | $9,500M | $11,281M |
| R&D Investment | $2,987M | $3,473M | $3,944M | $4,294M |
| CapEx | $442M | $360M | $183M | $179M |
| Acquisitions | $126M | $0M | $0M | $17M |
| Debt Repayment | $0M | $500M | $0M | $1,500M |
| Debt Issuance | $0M | $0M | $1,997M | $1,997M |
| Dividends | $0 | $0 | $0 | $0 |
| Other Financing | ($553M) | ($596M) | ($582M) | ($624M) |
Capital Allocation as % of FCF (FY2025): - Buybacks: 114.5% (exceeding FCF -- funded partly by new debt) - R&D: 43.6% (not funded from FCF, but from revenue) - CapEx: 1.8%
Observation: Adobe's capital allocation is overwhelmingly dominated by buybacks. The company pays no dividend. R&D spending is growing at 12.8% CAGR (3yr) -- healthy investment in the business. But the buyback program now exceeds FCF, meaning Adobe is borrowing to buy back stock. FY2025 buybacks of $11.3B vs FCF of $9.9B -- the gap was bridged by $2.0B in new debt issuance.
8. ROIC (Return on Invested Capital)
ROIC = NOPAT / Invested Capital, where NOPAT = Operating Income x (1 - Tax Rate)
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Operating Income | $6,098M | $6,650M | $7,741M | $8,706M |
| Tax Rate (effective) | 21% | 20% | 20% | 18% |
| NOPAT | $4,817M | $5,320M | $6,193M | $7,139M |
| Invested Capital (Equity + Debt - Cash) | $12,588M | $12,756M | $12,275M | $11,676M |
| ROIC | 38.3% | 41.7% | 50.4% | 61.1% |
Trend: Exceptional and improving. ROIC has risen from 38% to 61% in three years. This is driven by two forces: (1) operating income growing rapidly, and (2) invested capital shrinking as buybacks erode equity. Both numerator and denominator are moving in ROIC's favor.
Caveat: Invested capital is shrinking partly because equity is being consumed by buybacks, not because the business is becoming more efficient per se. Still, a 60%+ ROIC is elite-tier and reflects Adobe's moat.
Note: If we use average invested capital [(beginning + ending)/2], FY2025 ROIC = 7,139 / ((12,275 + 11,676)/2) = 59.6%. Still exceptional.
9. Gross Margin Trend
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Revenue | $17,606M | $19,409M | $21,505M | $23,769M |
| Cost of Revenue | $2,165M | $2,354M | $2,358M | $2,551M |
| Gross Profit | $15,441M | $17,055M | $19,147M | $21,218M |
| Gross Margin | 87.7% | 87.9% | 89.0% | 89.3% |
Trend: Stable to slightly expanding. Gross margins in the 88-89% range are world-class and consistent with a dominant software platform. The slight expansion suggests pricing power exceeding cost growth. Cost of revenue has grown slower than revenue -- a good sign.
10. Operating Margin Trend
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Operating Income | $6,098M | $6,650M | $7,741M* | $8,706M |
| Operating Margin | 34.6% | 34.3% | 36.0% | 36.6% |
| R&D as % of Rev | 17.0% | 17.9% | 18.3% | 18.1% |
| S&M as % of Rev | 28.2% | 27.6% | 26.8% | 27.3% |
| G&A as % of Rev | 6.9% | 7.3% | 7.1% | 6.6% |
*FY2024 operating income includes add-back of $1B Figma termination fee for apples-to-apples comparison.
Trend: Gradual expansion. Operating margins have improved from 34.6% to 36.6%. S&M as % of revenue is declining slightly (scale leverage). R&D has ticked up (AI investment). G&A is stable to declining. The business is showing operating leverage.
11. SBC as % of FCF (Detailed)
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Stock-Based Compensation | $1,440M | $1,718M | $1,833M | $1,942M |
| SBC YoY Growth | -- | +19.3% | +6.7% | +5.9% |
| SBC as % of Revenue | 8.2% | 8.9% | 8.5% | 8.2% |
| SBC as % of FCF | 19.5% | 24.7% | 23.3% | 19.7% |
| SBC as % of Net Income | 30.3% | 31.7% | 33.0% | 27.2% |
| SBC as % of Operating Income | 23.6% | 25.8% | 23.7% | 22.3% |
SBC growth is decelerating (from 19% to 6% YoY), which is positive. As a % of revenue and FCF, it's trending down. The ~$2B annual SBC bill is the cost of retaining talent in competitive tech markets.
"True" FCF (FCF minus SBC):
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| FCF | $7,396M | $6,942M | $7,873M | $9,852M |
| Minus SBC | ($1,440M) | ($1,718M) | ($1,833M) | ($1,942M) |
| FCF ex-SBC | $5,956M | $5,224M | $6,040M | $7,910M |
| FCF ex-SBC Margin | 33.8% | 26.9% | 28.1% | 33.3% |
Even after stripping SBC, Adobe generates ~$8B in "true" free cash flow on a 33% margin. This is excellent.
12. Graham's Number (Manual Calculation)
Graham's Number = sqrt(22.5 x EPS x BVPS)
| Metric | Value |
|---|---|
| Diluted EPS (FY2025) | $16.70 |
| Book Value Per Share (Equity / Shares) | $11,623M / 413M = $28.14 |
| Graham's Number | sqrt(22.5 x 16.70 x 28.14) = sqrt(10,575) = $102.83 |
Current price ~$247 is 2.4x Graham's Number. By Graham's conservative framework, Adobe is significantly overvalued. However, Graham's Number systematically undervalues high-ROIC, asset-light software businesses because book value is suppressed by buybacks and intangible-heavy balance sheets. This metric is informational but not actionable for Adobe's company type.
13. FCF Per Share (Manual Calculation)
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| FCF | $7,396M | $6,942M | $7,873M | $9,852M |
| Diluted Shares | 471M | 459M | 450M | 427M |
| FCF/Share | $15.70 | $15.12 | $17.50 | $23.07 |
At current price ~$247, the P/FCF = 10.7x on trailing FY2025 numbers. This is cheap for a high-quality software compounder.
FCF Yield = 9.3% -- notably high for Adobe historically.
SUMMARY SCORECARD
| Metric | Value | Assessment |
|---|---|---|
| Revenue CAGR (3yr) | 10.5% | Solid, consistent |
| Net Income CAGR (3yr) | 14.4% | Strong (FY2024 depressed by one-time) |
| EPS CAGR (3yr) | 18.3% | Excellent (buyback-enhanced) |
| FCF CAGR (3yr) | 10.0% | Good (FY2023 tax headwind) |
| FCF/Share CAGR (3yr) | 13.7% | Strong |
| FCF Margin | 41.4% | Elite |
| Gross Margin | 89.3% | World-class, expanding |
| Operating Margin | 36.6% | Strong, expanding |
| ROIC | 61.1% | Exceptional |
| Debt/Assets | 22.5% | Manageable but rising |
| Net Debt Position | ~$0 (neutral) | Was net cash, now neutral |
| Share Reduction (3yr) | -9.3% (-3.2%/yr) | Aggressive buyback |
| SBC/FCF | 19.7% | Moderate, improving |
| P/FCF (trailing) | 10.7x | Historically cheap |
| FCF Yield | 9.3% | Attractive |
| Graham's Number | $103 vs $247 price | Overvalued by Graham (expected for software) |
FLAGS & CONCERNS
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Balance sheet deterioration: Adobe has shifted from net cash to neutral, taking on ~$4B in new debt to fund buybacks. If FCF growth stalls, the buyback-funded-by-debt model becomes less sustainable.
-
Buybacks exceed FCF: FY2025 buybacks ($11.3B) exceeded FCF ($9.9B) by $1.4B. This was bridged by new debt. Sustainable only if FCF continues growing.
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SBC remains material: $1.9B/year is real dilution cost. Buybacks net of SBC are effective but expensive.
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Only 4 years of data available: Cannot compute 5-year or 8-year CAGRs from this dataset. Historical comparisons are limited.
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Stock price decline: ADBE has fallen from ~$670 highs (Nov 2021) to ~$247, a 63% drawdown. Market is pricing in AI disruption risk and/or growth deceleration concerns.
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Tangible book value is negative (-$1.7B) due to goodwill-heavy balance sheet ($12.9B goodwill) and aggressive buybacks reducing equity. Not unusual for acquisitive software, but limits traditional value metrics.
BOTTOM LINE (Fundamentals Analyst)
Adobe's financial health is excellent. The company generates nearly $10B in free cash flow at a 41% margin, grows revenue at a consistent 10-11%, and has been aggressively returning capital to shareholders via buybacks. ROIC above 60% signals a powerful economic moat. Margins are expanding. Per-share metrics are growing faster than headline numbers.
The one cautionary note is the increasingly aggressive financial engineering: debt is rising, buybacks exceed FCF, and the company has shifted from a net cash position to roughly neutral. This isn't dangerous today -- $10B+ in OCF provides ample coverage -- but it leaves less margin for error if growth disappoints.
At ~$247 and a 10.7x P/FCF, the stock appears attractively priced relative to its quality. This is a fundamentally healthy business trading at a historically compressed multiple.