Comments on: Owning a Slice of Adobe’s Toll Bridge http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/ Value Investing Blog Mon, 16 May 2011 10:55:06 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Graham Jervis http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-2867 Graham Jervis Wed, 03 Jun 2009 14:35:21 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-2867 Hi Joe, Just finished reading your book, it was great and very educational when it comes to valuing a business as a business owner. Your book also brought me to this site and through this site i came across Sanjay Shetty i believe and thru her blogs i came across the FWallStreet_model.xls. Based on this excel model, ADBE is valued around 49.42. At $29.06, price as of today, its trading at a 41% discount. Based on the excel sheet, the median FCF growth since 99 to present has been 17.8%. Shareholders equity has even done better with a median growth over the same period of 32.2% and the CROIC of 35.2%. the model has it valued at around 27.084 billion by 2028. since ADBE is fairly steady i used a 25% MOS, which gives a buy under price of $37.07. Lets say i use the same 14% FCF growth instead of 17.8, i would get a fair value of $41.47, at $29.06, this is a 30% MOS. This seems like a good long term play still. i am going to go ahead and nibble at it. Hi Joe,

Just finished reading your book, it was great and very educational when it comes to valuing a business as a business owner. Your book also brought me to this site and through this site i came across Sanjay Shetty i believe and thru her blogs i came across the FWallStreet_model.xls. Based on this excel model, ADBE is valued around 49.42. At $29.06, price as of today, its trading at a 41% discount. Based on the excel sheet, the median FCF growth since 99 to present has been 17.8%. Shareholders equity has even done better with a median growth over the same period of 32.2% and the CROIC of 35.2%.

the model has it valued at around 27.084 billion by 2028. since ADBE is fairly steady i used a 25% MOS, which gives a buy under price of $37.07.

Lets say i use the same 14% FCF growth instead of 17.8, i would get a fair value of $41.47, at $29.06, this is a 30% MOS. This seems like a good long term play still. i am going to go ahead and nibble at it.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1611 Joe Ponzio Mon, 10 Mar 2008 10:34:29 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1611 I'm not aware of a single resource for market share data. The company's reports usually have a good amount of information, and Google is a great resource. If you know the industry and the company inside and out, you should have a good grasp on market share. It may not be an exact science, but you'll know if your company is <i>the</i> company. I’m not aware of a single resource for market share data. The company’s reports usually have a good amount of information, and Google is a great resource.

If you know the industry and the company inside and out, you should have a good grasp on market share. It may not be an exact science, but you’ll know if your company is the company.

]]> By: Howard http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1605 Howard Sun, 09 Mar 2008 07:00:03 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1605 Joe, Obviously market share is important as it is mentioned a lot on your posts (and in this post twice). Where is the best place to find out market share data on any company of interest? Thanks, Howard Joe,

Obviously market share is important as it is mentioned a lot on your posts (and in this post twice). Where is the best place to find out market share data on any company of interest?

Thanks,

Howard

]]> By: Glenn http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1365 Glenn Wed, 06 Feb 2008 22:59:31 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1365 Nelson wrote in his post "Adobe being a niche player maybe a target". In my mind, and humble opinion, the answer is fairly simple and reasonably obvious. Just ask yourself Nelson, if you were the CEO of a successful corporation and had a mountain of earned cash to invest (remembering that shareholders need to be both entertained and financially satisfied) and given all of the possible investment options available to you (something tells me you will not be putting all your hard earned dollars into bonds), would you be considering the acquistion of Adobe? If it were me, I would. Perhaps such an acquisition would be based on savvy business reasons. Perhaps , simply because as CEO of a successful corporation I have the resources available and wield enough influence to indulge my own greed and desire for more power. Ever since Joe mentioned the strength of Adobe (cash flow, moat) to me several months ago, my personal instinct is that Adobe is an attractive target. Do I jump in now? Do I wait until Adobe is in play? Decisions, decisions. My own evaluation of Adobe suggests an intrinsic value of around $35/share and although we are below that level now and it justifies acquisition of the stock, I think for the time being I shall continue to follow Joe's lead and not back the truck up just yet. I may change my mind if the stock price continues to fall for I need to remember that I am not the only one who is using the intrinsic value to guide investment decisions. Mr. CEO is also sharpening his pencil. Glenn Glenn Nelson wrote in his post “Adobe being a niche player maybe a target”. In my mind, and humble opinion, the answer is fairly simple and reasonably obvious. Just ask yourself Nelson, if you were the CEO of a successful corporation and had a mountain of earned cash to invest (remembering that shareholders need to be both entertained and financially satisfied) and given all of the possible investment options available to you (something tells me you will not be putting all your hard earned dollars into bonds), would you be considering the acquistion of Adobe? If it were me, I would. Perhaps such an acquisition would be based on savvy business reasons. Perhaps , simply because as CEO of a successful corporation I have the resources available and wield enough influence to indulge my own greed and desire for more power. Ever since Joe mentioned the strength of Adobe (cash flow, moat) to me several months ago, my personal instinct is that Adobe is an attractive target. Do I jump in now? Do I wait until Adobe is in play? Decisions, decisions. My own evaluation of Adobe suggests an intrinsic value of around $35/share and although we are below that level now and it justifies acquisition of the stock, I think for the time being I shall continue to follow Joe’s lead and not back the truck up just yet. I may change my mind if the stock price continues to fall for I need to remember that I am not the only one who is using the intrinsic value to guide investment decisions. Mr. CEO is also sharpening his pencil.

Glenn

Glenn

]]> By: Joe Ponzio http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1358 Joe Ponzio Wed, 06 Feb 2008 04:34:00 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1358 Free cash flow is a guide to determining whether or not the business is consistent. It is the starting point for many valuations and can often be used as the "future cash" component of the valuation. For a company like Adobe (or any other company that issues a ton of stock options), where $150 million was expensed in stock options, you should <a href="http://www.sec.gov/Archives/edgar/data/796343/000104746908000497/a2181848z10-k.htm#du49301_item_8._financial_statements_and_supplementary_data" title="go to the cash flow reports" rel="nofollow" target="blank">go to the cash flow reports</a> and back out any "non-negligible" charges that might affect the valuation. Free cash flow is a guide to determining whether or not the business is consistent. It is the starting point for many valuations and can often be used as the “future cash” component of the valuation.

For a company like Adobe (or any other company that issues a ton of stock options), where $150 million was expensed in stock options, you should go to the cash flow reports and back out any “non-negligible” charges that might affect the valuation.

]]> By: Dan http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1352 Dan Tue, 05 Feb 2008 01:04:41 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1352 Adobe generated about $980 million in owner earnings last year, up from $580 and $540 million in 2006 and 2005, respectively. Joe - are these your own calculations, or are these figures published somewhere? How do your owners earnings estimates relate to the free cash flow values as published on the Morningstar financial screens? http://quicktake.morningstar.com/StockNet/cashflow10.aspx?Country=USA&Symbol=ADBE As always, thanks! Adobe generated about $980 million in owner earnings last year, up from $580 and $540 million in 2006 and 2005, respectively.

Joe – are these your own calculations, or are these figures published somewhere? How do your owners earnings estimates relate to the free cash flow values as published on the Morningstar financial screens?

http://quicktake.morningstar.com/StockNet/cashflow10.aspx?Country=USA&Symbol=ADBE

As always, thanks!

]]> By: Joe Ponzio http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1347 Joe Ponzio Mon, 04 Feb 2008 14:14:41 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1347 I don't know about anyone else, but I see one common theme in the comments: <i>uncertainty</i>. Will Adobe hang on to its moat? Will it continue to be the dominant company? That's precisely why I'm not super-excited even though the business appears to be at a slight discount. I don’t know about anyone else, but I see one common theme in the comments: uncertainty. Will Adobe hang on to its moat? Will it continue to be the dominant company?

That’s precisely why I’m not super-excited even though the business appears to be at a slight discount.

]]> By: kfh227 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1346 kfh227 Mon, 04 Feb 2008 11:20:45 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1346 The PDF format has no moat, especially if things go the way of ODF or some other open document format. Their photo editing s the best. It truly is amazingly good stuff. Flash can be replaced any time over the next 5 years. I'd go as far as to say that it will be replaced. What I'm getting at is that it is obvious that 2 of the 3 areas mentioned have no moat. And the Photoshop moat is even questionable. While the numbers are good, I always have to think of moat and Adobe doesn't have it. When it comes to technology, it is always easy to punch holes in products when moat is brought up as a topic. The fact is that hte only thing with a barrier is the photo editing software. The PDF format has no moat, especially if things go the way of ODF or some other open document format.

Their photo editing s the best. It truly is amazingly good stuff.

Flash can be replaced any time over the next 5 years. I’d go as far as to say that it will be replaced.

What I’m getting at is that it is obvious that 2 of the 3 areas mentioned have no moat. And the Photoshop moat is even questionable.

While the numbers are good, I always have to think of moat and Adobe doesn’t have it. When it comes to technology, it is always easy to punch holes in products when moat is brought up as a topic. The fact is that hte only thing with a barrier is the photo editing software.

]]> By: Stuart http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1343 Stuart Sat, 02 Feb 2008 14:05:30 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1343 Interestingly enough, in this same position I believe Autodesk(ADSK) lives. They have a huge moat, owning 3D Max, and Maya, used for Game and Movie 3D design(Most major Blockbusters have used their software), there are other 3D apps but few people use them in high end design. Not to mention Autodesk owns AutoCAD an Architectural Standard. I wonder if any one on this forum has any view on this company also, which I have had my eye on for about the samer time as Adobe. They too are trading low right now to my calculation. Interestingly enough, in this same position I believe Autodesk(ADSK) lives. They have a huge moat, owning 3D Max, and Maya, used for Game and Movie 3D design(Most major Blockbusters have used their software), there are other 3D apps but few people use them in high end design. Not to mention Autodesk owns AutoCAD an Architectural Standard. I wonder if any one on this forum has any view on this company also, which I have had my eye on for about the samer time as Adobe. They too are trading low right now to my calculation.

]]> By: Stuart http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge/#comment-1342 Stuart Sat, 02 Feb 2008 13:05:41 +0000 http://www.fwallstreet.com/article/107-owning-a-slice-of-adobes-toll-bridge#comment-1342 I have been on this blog for sometime, and really have found it a wonderful learning experience, and want to real thank Joe and everyone for taking the time to explain and give great advice and commentary to ideas shown here especially to novices such as me. Please don't let this end. For once, here is a subject I know well, Adobe is very much part of my working life, as a designer and developer I can feel I can add a little to this discussion. These of course are mainly my opinions and are just observations I have had in my industry. Adobe, is huge in design, even if I choose to use another piece of software, the odds are that my friends or clients output will at somepoint have to live inside an Adobe tool. So things like native formats are important, especially when you might have to reporduce assets in another tool otherwise. I see this as a huge barrier to resistance to change, not to mention the moat value designers place on Adobe is strong. Just look at any design studio and ask why they use Apple macs, when the PC alternative is equal to any Mac and exceeds on price. Cool is Cool. And PC's are just not cool. Additionally I have noticed very much recently that Adobe is in fact looking to target the online application space with thier AIR concept. Now as a designer developer I have been recently using Microsoft's Expression Suite very much aimed at developers more than designers, and I can say I honestly miss Adobe products on the design side, Microsoft at this point just doesn't get design and worflow. However of course Microsoft is "development" so they need to push harder on the design to get the winning formulae. Certainly Silverlight is a fair competitor to Flash. Winning hearts and minds is the challenge on Microsoft right now. On the otherhand,however, Adobe isn't development orientated, actionscipt and Flash are not true development it is dwafed by .NET a platform plus the size, influence and power of Microsoft in this space. So in summary from my point of view, Adobe is design to designers the World over the way Nike is Sports. However, no one is infallible and all it takes is someone like Microsoft to upset the apple cart to change things. I personnally do not believe such a company can over throw Adobe for a long time, just because of loyality to the tools Adobe has, however if clients start asking for alot of heavy code behind the scenes then something like Silverlight looks very promising. Of course worst case for Adobe is to support a new format into their existing technology. Anyhow just my two cents I am certainly very interested in Adobe, they have a huge strong hold, but I do believe they will not hold this position indefinately. MY big watch signs of things changing will be when clients start asking for something other than Flash, for their Online/Desktop presence...... Thanks for listening Stuart I have been on this blog for sometime, and really have found it a wonderful learning experience, and want to real thank Joe and everyone for taking the time to explain and give great advice and commentary to ideas shown here especially to novices such as me. Please don’t let this end.

For once, here is a subject I know well, Adobe is very much part of my working life, as a designer and developer I can feel I can add a little to this discussion. These of course are mainly my opinions and are just observations I have had in my industry. Adobe, is huge in design, even if I choose to use another piece of software, the odds are that my friends or clients output will at somepoint have to live inside an Adobe tool. So things like native formats are important, especially when you might have to reporduce assets in another tool otherwise.

I see this as a huge barrier to resistance to change, not to mention the moat value designers place on Adobe is strong. Just look at any design studio and ask why they use Apple macs, when the PC alternative is equal to any Mac and exceeds on price. Cool is Cool. And PC’s are just not cool.

Additionally I have noticed very much recently that Adobe is in fact looking to target the online application space with thier AIR concept. Now as a designer developer I have been recently using Microsoft’s Expression Suite very much aimed at developers more than designers, and I can say I honestly miss Adobe products on the design side, Microsoft at this point just doesn’t get design and worflow. However of course Microsoft is “development” so they need to push harder on the design to get the winning formulae.

Certainly Silverlight is a fair competitor to Flash. Winning hearts and minds is the challenge on Microsoft right now. On the otherhand,however, Adobe isn’t development orientated, actionscipt and Flash are not true development it is dwafed by .NET a platform plus the size, influence and power of Microsoft in this space. So in summary from my point of view, Adobe is design to designers the World over the way Nike is Sports. However, no one is infallible and all it takes is someone like Microsoft to upset the apple cart to change things. I personnally do not believe such a company can over throw Adobe for a long time, just because of loyality to the tools Adobe has, however if clients start asking for alot of heavy code behind the scenes then something like Silverlight looks very promising. Of course worst case for Adobe is to support a new format into their existing technology.

Anyhow just my two cents I am certainly very interested in Adobe, they have a huge strong hold, but I do believe they will not hold this position indefinately. MY big watch signs of things changing will be when clients start asking for something other than Flash, for their Online/Desktop presence……

Thanks for listening

Stuart

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