Adobe Systems Inc. (ADBE)

Transcription

1 Americas/United States Equity Research Software Rating (from NEUTRAL) OUTPERFORM Price (23-Mar-17, US$) Target price (US$) (from ) week price range (US$) Market cap (US$ m) 62, Target price is for 12 months. Research Analysts Michael Nemeroff Alexander Hu Christopher Rochester Share price performance A p r Ju l O c t Ja n A D BE.O Q S& P IN D EX On 23-Mar-2017 the S&P 500 INDEX closed at Daily Mar23, Mar23, 2017, 03/23/16 = US$92.16 Quarterly EPS Q1 Q2 Q3 Q4 2016A E E Adobe Systems Inc. (ADBE) UPGRADE RATING Upgrade to OP on Expectations of Creative, Cash Flow Upside Upgrade to Outperform, increase TP to $150. We upgrade shares of ADBE to Outperform from Neutral, given our expectations for continued momentum in its highly profitable Creative Cloud business (CS models F2017 Digital Media ARR growth of +27% yr/yr to $5.094B) that we expect will lead to stronger than expected operating cash flows over the next few years (we now forecast F2018 OCF of $3.219B, which implies +30% CAGR from F vs. prior guide of ~+25%). We've been on the sidelines on ADBE primarily due to valuation (its shares trade at a 2017 EV/Sales multiple of 8.5x, a 75% premium to the overall group average of 4.8x) despite our positive assessment of ADBE's broad stack of digital media and digital marketing assets, large market opportunity, and a highly-skilled management team. However, as OCF/FCF become increasingly more important to valuation (see our 2017 Software Outlook), we believe investors will increasingly gravitate towards subscription software vendors that demonstrate growth AND prospects for strong cash flows. To be sure, ADBE currently trades at a 2017 EV/OCF and EV/FCF multiple of 23.0x and 25.0x, a discount to similar growing SaaS peers avg of 29.6x and 45.6x, respectively. As such, we increase our target price to $150 (from $125), which implies a 2018 EV/OCF and EV/FCF multiple of 22.5x and 24.6x. Adobe Summit takeaways. We recently attended the Adobe Summit digital marketing conference, during which mgmt highlighted a new go-to-market strategy with Adobe Experience Cloud (comprised of Adobe Marketing Cloud, Advertising Cloud, and Analytics Cloud), its competitive differentiation highlighting the large breadth of digital marketing solutions, and a further extension of its partnership with MSFT (not currently covered) that would offer joint solutions specifically designed to help enterprises transform their customer experiences by leveraging assets, technologies, and data from both companies with Adobe Sensei, an artificial intelligence solution. Estimates. We increase our F2017/F2018 revenue ests to $7.161B/$8.518B from $7.159B/$8.498B, respectively, and EPS ests to $3.92/$4.90 from $3.91/$4.82. Risks to our ests include competition, higher than expected churn, and potentially large and dilutive acquisitions. Financial and valuation metrics Year 11/15A 11/16A 11/17E 11/18E EPS (Excl. ESO) (US$) EPS (CS adj., ) Prev. EPS (CS adj., US$) P/E (CS adj.) (x) P/E rel. (CS adj., %) Revenue (US$ m) 4, , , ,517.9 EBITDA (US$ m) 1, , , ,502.3 Net Debt (US$ m) -2,081-2,859-3,719-5,401 OCFPS (US$) P/OCF (x) Number of shares (m) Price/Sales (x) BV/share (Next Qtr., US$) 15.5 P/BVPS (x) 8.3 Net debt (Next Qtr., US$ m) Dividend (current, US$) - Dividend yield (%) - Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Adobe Systems Inc. (ADBE) Price (23 Mar 2017): US$126.87; Rating: (from NEUTRAL) OUTPERFORM; Target Price: (from US$125.00) US$150.00; Analyst: Michael Nemeroff Income Statement 11/15A 11/16A 11/17E 11/18E Revenue (US$ m) 4, , , ,517.9 Sales 4, , , ,517.9 EBITDA 1, , , ,502.3 Operating profit 1, , , ,145.0 Recurring profit 1, , , ,094.5 Cash Flow 11/15A 11/16A 11/17E 11/18E Cash flow from operations 1,470 2,200 2,647 3,219 CAPEX (185) (204) (219) (278) Free cashflow to the firm 1,285 1,996 2,428 2,941 Cash flow from investments (1,488) (960) (527) (278) Net share issue(/repurchase) (625) (1,075) (973) (1,259) Dividends paid Issuance (retirement) of debt 378 (0) (0) 0 Other (284) 0 Cashflow from financing activities (104) (447) (1,258) (1,259) Effect of exchange rates (21) (14) (2) 0 Changes in Net Cash/Debt (144) ,682 Net debt at end (2,081) (2,859) (3,719) (5,401) Balance Sheet ($US) 11/15A 11/16A 11/17E 11/18E Assets Other current assets 3,273 3,995 3,832 3,839 Total current assets 4,822 5,840 6,884 8,693 Total assets 11,726 12,707 14,090 15,820 Liabilities Short-term debt Total current liabilities 2,214 2,812 3,333 3,926 Long-term debt 1,907 1,902 1,884 1,884 Total liabilities 4,725 5,282 5,851 6,465 Shareholder equity 7,002 7,425 8,239 9,355 Total liabilities and equity 11,726 12,707 14,090 15,820 Net debt (2,081) (2,859) (3,719) (5,401) Per share 11/15A 11/16A 11/17E 11/18E No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share Earnings 11/15A 11/16A 11/17E 11/18E Sales growth (%) EBIT growth (%) Net profit growth (%) EPS growth (%) EBIT margin (%) Valuation 11/15A 11/16A 11/17E 11/18E EV/Sales (x) EV/EBIT (x) P/E (x) Quarterly EPS 2016A Q Q Q Q E E Company Background Adobe offers a line of products and services used by creative professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, Blue/Grey Sky Scenario Our Blue Sky Scenario (US$) (from ) Better than expected traction in its cloud marketing initiatives and increased ARPU expansion prospects within its Creative Cloud subscriber base result in revenue CAGR of +17.1% from F2019 to F2026 and terminal operating margin of 45.2%. This yields a blue sky scenario of $175 per share, which implies a C2017 / C2018 EV/OCF multiple of 32.1x / 26.4x and EV/FCF multiple of 35.0x / 28.9x, respectively. Our Grey Sky Scenario (US$) (from ) Weaker than anticipated momentum in Digital Marketing and higher than expected churn from its Creative Cloud subscriber base result in revenue CAGR of only +8.1% from F2019 to F2026 and terminal operating margin of 38.4%. This yields a grey sky scenario of $105 per share, which implies a C2017 / C2018 EV/OCF multiple of only 18.8x / 15.5x and EV/FCF multiple of 20.5x / 16.9x, respectively Share price performance 9 0 A p r Ju l O c t Ja n A D BE.O Q S& P IN D EX On 23-Mar-2017 the S&P 500 INDEX closed at Daily Mar23, Mar23, 2017, 03/23/16 = US$92.16 Source: Company data, Thomson Reuters, Credit Suisse estimates Adobe Systems Inc. (ADBE) 2

3 EV/NTM Operating and Free Cash Flow Index Figure 1: ADBE's EV/NTM Operating Cash Flow Index 27.0x 24.0x 21.0x 20.5x 20.3x 18.0x 15.0x Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 EV / NTM OCF EV / NTM OCF Average EV / NTM OCF Median Source: Thomson Reuters, Credit Suisse estimates Figure 2: ADBE's EV/NTM Free Cash Flow Index 36.0x 33.0x 30.0x 27.0x 24.5x 24.0x 23.3x 21.0x 18.0x Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 EV / NTM FCF EV / NTM FCF Average EV / NTM FCF Median Source: Thomson Reuters, Credit Suisse estimates Adobe Systems Inc. (ADBE) 3

4 Financial Model and Estimates Figure 3: Historical and Projected Income Statement and Growth Analysis US$ in millions, unless otherwise stated Fiscal 2016 by Quarter Fiscal 2017 by Quarter Fiscal 2018 by Quarter Fiscal Year Ends November Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17E Aug-17E Nov-17E Feb-18E May-18E Aug-18E Nov-18E E 2018E Total Revenue $ 1,383.3 $ 1,398.7 $ 1,464.0 $ 1,608.4 $ 1,681.6 $ 1,730.9 $ 1,798.9 $ 1,949.7 $ 2,014.6 $ 2,059.8 $ 2,138.9 $ 2,304.6 $ 4,147.1 $ 4,795.5 $ 5,854.4 $ 7,161.2 $ 8,517.9 Subscription Revenue 1, , , , , , , , , , , , , , , , ,217.4 % of revenue 77.4% 77.5% 79.8% 78.5% 82.3% 82.4% 83.4% 83.9% 84.5% 84.7% 84.8% 84.9% 50.1% 67.2% 78.3% 83.0% 84.7% Product Revenue , , % of revenue 14.5% 14.0% 12.4% 13.8% 10.9% 10.9% 10.1% 9.7% 9.2% 9.2% 9.2% 9.2% 39.3% 23.5% 13.7% 10.4% 9.2% Services and Support Revenue % of revenue 8.1% 8.5% 7.8% 7.7% 6.8% 6.7% 6.5% 6.4% 6.3% 6.1% 6.0% 5.9% 10.7% 9.3% 8.0% 6.6% 6.1% Cost of Subscription Revenue Subscription Revenue Margin % 91.2% 90.3% 90.9% 91.1% 90.8% 91.0% 91.0% 91.0% 91.0% 91.0% 91.0% 91.0% 86.3% 89.1% 90.9% 91.0% 91.0% Cost of Product Revenue Product Revenue Margin % 91.1% 92.7% 92.2% 92.8% 93.0% 92.0% 92.0% 92.0% 92.5% 92.0% 92.0% 92.0% 94.9% 93.1% 92.2% 92.2% 92.1% Cost of Services and Support Revenue Services and Support Revenue Margin % 44.1% 45.7% 44.1% 43.2% 35.6% 44.7% 43.1% 42.2% 34.6% 43.7% 42.1% 41.2% 63.6% 52.7% 44.3% 41.5% 40.4% Total Cost of Revenue ,019.8 Gross Profit 1, , , , , , , , , , , , , , , , ,498.1 Gross Margin 87.3% 86.9% 87.4% 87.6% 87.3% 88.0% 88.0% 88.0% 87.6% 88.2% 88.1% 88.1% 87.2% 86.6% 87.3% 87.8% 88.0% Operating expenses: Sales and Marketing , , , , ,506.2 % of revenue 31.9% 30.7% 30.4% 28.8% 28.7% 30.3% 30.0% 30.0% 29.5% 30.3% 29.5% 28.5% 36.6% 32.4% 30.4% 29.8% 29.4% Research and Development , ,187.6 % of revenue 14.8% 14.5% 14.9% 14.1% 14.7% 14.5% 15.0% 14.5% 14.2% 14.0% 13.8% 13.8% 17.6% 15.5% 14.5% 14.7% 13.9% General and Administrative % of revenue 9.2% 8.6% 8.6% 8.1% 7.8% 7.9% 8.5% 8.1% 7.9% 7.9% 7.8% 7.4% 11.2% 9.8% 8.6% 8.1% 7.7% Total Operating Expenses , , , , , , , , , ,353.1 Operating Income , , , ,145.0 Operating Margin % 31.5% 33.1% 33.5% 36.7% 36.2% 35.3% 34.5% 35.4% 36.0% 36.0% 37.0% 38.4% 21.8% 28.9% 33.8% 35.3% 36.9% Stock options compensation expense % of revenue 6.6% 6.2% 5.9% 5.4% 6.2% 6.9% 6.3% 5.9% 5.9% 6.6% 6.0% 5.6% 8.1% 7.0% 6.0% 6.3% 6.0% Interest and other, net (14.3) (11.1) (14.6) (17.0) (10.9) (15.0) (14.0) (13.7) (13.2) (12.8) (12.5) (12.1) (52.4) (51.7) (56.9) (53.6) (50.6) Pretax income , , , ,094.5 Pro forma taxes Effective tax rate 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% Pro forma net income $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,053.6 $ 1,519.1 $ 1,955.8 $ 2,444.6 Pro forma net margin 24.0% 25.6% 25.7% 28.1% 28.1% 27.2% 26.6% 27.4% 27.9% 27.9% 28.8% 30.0% 16.2% 22.0% 25.9% 27.3% 28.7% Pro forma EPS (fully-diluted) $0.66 $0.71 $0.75 $0.90 $0.94 $0.94 $0.96 $1.07 $1.13 $1.15 $1.24 $1.38 $1.33 $2.08 $3.01 $3.92 $4.90 FD shares outstanding (PF) Fiscal 2016 by Quarter Fiscal 2017 by Quarter Fiscal 2018 by Quarter Fiscal Year Ends November Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17E Aug-17E Nov-17E Feb-18E May-18E Aug-18E Nov-18E E 2018E Sequential growth Revenue 5.9% 1.1% 4.7% 9.9% 4.6% 2.9% 3.9% 8.4% 3.3% 2.2% 3.8% 7.7% 2.3% 15.6% 22.1% 22.3% 18.9% Subscription Revenue 17.9% 1.3% 7.8% 8.0% 9.6% 3.1% 5.2% 9.0% 4.1% 2.5% 4.0% 7.9% 82.5% 55.3% 42.2% 29.7% 21.4% Product Revenue (29.3)% (2.3)% (7.9)% 22.6% (17.4)% 3.2% (4.3)% 4.4% (1.7)% 1.4% 4.1% 8.0% (34.1)% (30.9)% (28.9)% (7.2)% 5.3% Services and Support Revenue (2.2)% 5.8% (3.5)% 8.6% (7.9)% 0.9% 1.9% 6.2% 1.3% 0.2% 1.8% 5.6% (1.0)% 0.9% 5.1% 0.7% 9.7% Gross profit 7.0% 0.6% 5.3% 10.2% 4.1% 3.8% 3.9% 8.4% 2.9% 2.9% 3.8% 7.7% 0.8% 14.8% 23.1% 23.0% 19.2% Sales and marketing 7.2% (2.6)% 3.6% 3.9% 4.3% 8.7% 2.9% 8.4% 1.6% 5.0% 1.1% 4.1% 1.4% 2.4% 14.4% 19.8% 17.6% Research and development 7.0% (1.0)% 7.7% 4.2% 8.6% 1.8% 7.5% 4.8% 1.2% 0.8% 2.4% 7.7% 3.6% 2.0% 14.4% 23.3% 13.1% General and administrative 8.9% (5.7)% 4.6% 3.9% 0.5% 4.5% 11.8% 3.3% 0.8% 2.2% 2.5% 2.2% 2.9% 1.3% 6.9% 15.1% 14.0% Total operating expenses 7.4% (2.7)% 4.9% 4.0% 4.9% 6.1% 5.5% 6.6% 1.4% 3.4% 1.7% 4.8% 2.3% 2.1% 13.1% 20.0% 15.8% Operating income 6.1% 6.5% 6.0% 20.1% 3.1% 0.6% 1.4% 11.2% 5.2% 2.2% 6.9% 11.8% (3.2)% 53.0% 42.9% 27.8% 24.3% Pro forma pretax income 6.6% 7.5% 5.3% 20.2% 4.3% (0.1)% 1.6% 11.5% 5.3% 2.3% 7.1% 12.1% (2.3)% 56.3% 44.2% 28.8% 25.0% Pro forma net income 6.6% 7.5% 5.3% 20.2% 4.2% (0.1)% 1.6% 11.5% 5.3% 2.3% 7.1% 12.1% (2.3)% 56.4% 44.2% 28.7% 25.0% Pro forma EPS (fully-diluted) 6.7% 7.7% 5.6% 20.8% 4.3% 0.2% 1.8% 11.5% 5.3% 2.3% 7.0% 12.0% (1.6)% 56.8% 44.6% 30.2% 25.2% Year-over-year growth Revenue 24.7% 20.4% 20.2% 23.1% 21.6% 23.8% 22.9% 21.2% 19.8% 19.0% 18.9% 18.2% Subscription Revenue 50.0% 40.0% 41.0% 39.1% 29.3% 31.6% 28.4% 29.6% 23.0% 22.3% 20.9% 19.6% Product Revenue (30.8)% (28.4)% (34.3)% (22.0)% (8.8)% (3.7)% 0.1% (14.8)% 1.3% (0.4)% 8.4% 12.1% Services and Support Revenue 6.7% 4.3% 0.9% 8.5% 2.2% (2.6)% 2.7% 0.5% 10.5% 9.8% 9.7% 9.0% Gross profit 25.0% 21.1% 21.4% 24.8% 21.5% 25.3% 23.7% 21.7% 20.2% 19.2% 19.1% 18.4% Sales and marketing 22.4% 9.1% 14.5% 12.5% 9.4% 22.0% 21.2% 26.4% 23.1% 19.0% 16.9% 12.3% Research and development 10.8% 13.0% 14.9% 18.8% 20.6% 24.1% 23.9% 24.6% 16.1% 14.9% 9.4% 12.5% General and administrative 0.4% 7.1% 9.1% 11.5% 2.9% 14.0% 21.9% 21.2% 21.6% 19.0% 9.1% 8.0% Total operating expenses 15.1% 9.8% 13.7% 14.0% 11.3% 21.3% 22.1% 25.1% 20.9% 17.9% 13.6% 11.7% Operating income 47.5% 45.3% 36.2% 43.7% 39.7% 31.9% 26.3% 16.9% 19.3% 21.2% 27.8% 28.5% Pro forma pretax income 48.3% 47.8% 36.7% 45.1% 41.8% 31.8% 27.2% 18.0% 19.3% 22.1% 28.7% 29.3% Pro forma net income 48.3% 47.7% 36.7% 45.1% 41.8% 31.8% 27.2% 18.0% 19.3% 22.1% 28.7% 29.3% Pro forma EPS (fully-diluted) 48.8% 48.0% 37.3% 46.5% 43.2% 33.3% 28.6% 18.7% 19.9% 22.3% 28.6% 29.2% Source: Company data, Credit Suisse estimates Adobe Systems Inc. (ADBE) 4

5 Adobe Systems Inc. (ADBE) 5 Figure 4: Historical and Projected Segment Model Adobe Systems Inc F2016A F2017E F2018E Revenue Assumptions F2014A F2015A F2016A F2017E F2018E Q1A Q2A Q3A Q4A Q1A Q2E Q3E Q4E Q1E Q2E Q3E Q4E Amounts in US$000's, except per share data Nov Nov Nov Nov Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov I/S MODEL Total revenue $ 4,147.1 $ 4,795.5 $ 5,854.4 $ 7,161.2 $ 8,517.9 $ 1,383.3 $ 1,398.7 $ 1,464.0 $ 1,608.4 $ 1,681.6 $ 1,730.9 $ 1,798.9 $ 1,949.7 $ 2,014.6 $ 2,059.8 $ 2,138.9 $ 2,304.6 % Change Yr/Yr 2.3% 15.6% 22.1% 22.3% 18.9% 24.7% 20.4% 20.2% 23.1% 21.6% 23.8% 22.9% 21.2% 19.8% 19.0% 18.9% 18.2% % Change Qtr/Qtr % 1.1% 4.7% 9.9% 4.6% 2.9% 3.9% 8.4% 3.3% 2.2% 3.8% 7.7% 23.0% Digital Media 2, , , , , % , , , , , , , , ,533.3 % of Total Revenue 62.8% 64.5% 67.3% 67.7% 67.8% 67.4% 67.4% 67.6% 66.9% 67.7% 67.9% 67.8% 67.3% 68.6% 68.2% 68.1% 66.5% % Change Yr/Yr -0.9% 18.9% 27.3% 22.9% 19.2% 32.6% 26.2% 28.6% 23.0% 22.2% 24.7% 23.1% 21.9% 21.5% 19.5% 19.4% 16.9% % Change Qtr/Qtr % 1.2% 5.0% 8.7% 5.8% 3.3% 3.6% 7.6% 5.4% 1.7% 3.6% 5.3% Digital Media ARR 1, , , , , % 3, , , , , , , , , , , ,105.3 % Change Yr/Yr 99.5% 59.1% 34.0% 26.9% 19.9% 49.5% 44.9% 39.8% 34.0% 35.9% 33.1% 29.6% 26.9% 25.3% 23.0% 21.1% 19.9% % Change Qtr/Qtr % 9.1% 8.4% 8.5% 5.9% 6.8% 5.5% 6.3% 4.6% 4.8% 4.0% 5.1% Incremental Digital Media ARR , , , , % Change Yr/Yr 25.2% 18.5% -8.5% 8.7% -8.6% -36.8% 8.0% -1.7% -9.7% 100.8% 1.8% -12.0% -4.8% -11.2% -11.8% -11.8% -0.6% % Change Qtr/Qtr % 115.9% 0.0% 10.9% -16.1% 9.5% -13.5% 19.9% -21.7% 8.7% -13.5% 35.1% Creative & Interactive 1, , , , , % , , , , , ,351.6 % of Total Revenue 43.6% 48.0% 54.3% 57.4% 59.2% 53.0% 54.0% 54.8% 55.1% 56.0% 57.2% 58.0% 58.1% 59.4% 59.3% 59.7% 58.6% % of Digital Media Revenue 69.4% 74.4% 80.6% 84.8% 87.3% 78.7% 80.0% 81.1% 82.3% 82.8% 84.2% 85.6% 86.4% 86.5% 86.9% 87.7% 88.1% % Change Yr/Yr -2.6% 27.4% 37.9% 29.4% 22.8% 43.9% 37.0% 39.3% 32.9% 28.6% 31.1% 29.9% 28.0% 27.0% 23.3% 22.4% 19.2% % Change Qtr/Qtr % 3.0% 6.3% 10.3% 6.4% 5.1% 5.4% 8.7% 5.5% 2.1% 4.6% 5.9% Document Services % % of Total Revenue 19.2% 16.5% 13.1% 10.3% 8.6% 14.4% 13.5% 12.8% 11.9% 11.6% 10.8% 9.8% 9.1% 9.2% 9.0% 8.4% 7.9% % of Digital Media Revenue 30.6% 25.6% 19.4% 15.2% 12.7% 21.3% 20.0% 18.9% 17.7% 17.2% 15.8% 14.4% 13.6% 13.5% 13.1% 12.3% 11.9% % Change Yr/Yr 3.4% -0.4% -3.5% -3.7% -0.6% 2.8% -4.3% -3.3% -8.7% -1.5% -1.0% -6.0% -6.5% -5.0% -1.0% 2.0% 2.0% % Change Qtr/Qtr % -5.3% -0.5% 1.8% 2.8% -4.9% -5.5% 1.2% 4.4% -0.9% -2.6% 1.2% 13.2% Digital Marketing 1, , , , , % % of Total Revenue 32.7% 31.5% 29.7% 29.9% 30.2% 29.4% 29.5% 29.3% 30.4% 29.8% 29.6% 29.8% 30.5% 29.3% 29.7% 29.9% 31.6% % Change Yr/Yr 10.3% 11.3% 15.1% 23.4% 20.0% 13.7% 12.5% 6.7% 27.6% 23.4% 24.2% 24.8% 21.8% 17.9% 19.6% 19.4% 22.5% % Change Qtr/Qtr % 1.5% 4.2% 13.7% 2.6% 2.1% 4.7% 11.0% -0.7% 3.7% 4.5% 13.9% Print & Publishing % % of Total Revenue 4.6% 4.0% 3.0% 2.4% 2.0% 3.3% 3.1% 3.0% 2.7% 2.5% 2.5% 2.4% 2.2% 2.1% 2.0% 2.0% 1.8% % Change Yr/Yr -5.8% 1.4% -7.6% -2.4% -2.0% -7.7% -10.0% -2.6% -9.7% -6.6% -1.0% -1.0% -1.0% -2.0% -2.0% -2.0% -2.0% % Change Qtr/Qtr % -4.4% 2.3% -1.6% -3.0% 1.3% 2.3% -1.6% -4.0% 1.3% 2.3% -1.6% Source: Company data, Credit Suisse estimates 24 March 2017

6 Figure 5: Historical and Projected Cash Flow Statement US$ in millions, unless otherwise stated Fiscal 2016 by Quarter Fiscal 2017 by Quarter Fiscal 2018 by Quarter Fiscal Year Ends November Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17E Aug-17E Nov-17E Feb-18E May-18E Aug-18E Nov-18E E 2018E CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (GAAP) , , ,874.0 Depreciation, amortization and accretion Stock-based compensation Deferred income taxes 56.9 (6.1) (6.7) (19.9) (26.1) (69.7) Retirement of property and equipment (21.4) Provision (recovery) for losses on receivables Provision for estimated returns Net (gains) losses on sales and impairment of inves (1.5) (0.8) (1.0) (2.6) (2.6) (2.6) (2.6) (2.6) (2.6) (2.6) (0.1) (9.2) 3.1 (8.7) (10.2) Deferred revenue Other (1.4) Changes in Other Operating Assets and Liabilities (111.2) 8.4 (30.4) (71.6) 35.0 (92.8) (95.4) (60.4) 95.9 (40.2) (66.7) (76.0) 69.6 (57.1) (204.7) (213.6) (87.0) Cash Flow from Operations , , , , ,219.3 CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (46.2) (53.8) (55.2) (48.6) (30.9) (55.4) (64.8) (68.2) (61.1) (68.7) (72.0) (76.3) (148.3) (184.9) (203.8) (219.3) (278.1) Free Cash Flow , , , , ,941.3 Purchases of marketable securities (160.9) (148.8) (247.6) (97.9) (298.5) (516.6) (655.1) - - Maturities of marketable securities Purchases/Sales from sales of Short-Term investme Purchases/Sales of Long-Term investments and oth (51.8) (0.5) (3.8) 3.4 (17.7) (14.0) 39.1 (52.7) (17.7) - Proceeds from sale of equity securities and other as Acquisitions - (48.4) - - (459.6) (29.8) (826.0) (48.4) (459.6) - Capitalized software Other Cash Flow from Investing (258.8) (251.5) (306.6) (143.1) (338.9) (55.4) (64.8) (68.2) (61.1) (68.7) (72.0) (76.3) (490.7) (1,488.4) (960.0) (527.3) (278.1) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (150.0) (225.0) (400.0) (300.0) (200.0) (314.8) (222.8) (235.4) (319.7) (320.2) (304.5) (315.0) (600.0) (625.0) (1,075.0) (973.0) (1,259.4) Proceeds from re-issuance of treasury stock (149.3) (6.3) 71.1 (6.3) (22.1) (90.7) - - Debt borrowing Debt repayment - (0.0) (0.1) (0.0) (0.3) (14.7) (603.3) (0.1) (0.3) - Excess tax benefits from employee stock plan (131.2) (131.2) - Payments of dividends Cash Flow from Financing (284.4) (180.9) (325.0) (300.5) (331.5) (314.8) (222.8) (235.4) (319.7) (320.2) (304.5) (315.0) (507.3) (200.7) (1,090.7) (1,104.5) (1,259.4) Foreign currency exchange rate impact on cash (0.2) (0.6) (5.0) (8.4) (2.4) (6.6) (21.3) (14.2) (2.4) - Net Increase in Cash and Cash Equivalents (45.9) 55.7 (118.7) (240.8) , ,681.8 Cash and Cash Equivalents, beginning of period , , , , , , , , , , ,024.6 Cash and Cash Equivalents, end of period , , , , , , , , , , , , ,706.5 Source: Company data, Credit Suisse estimates Figure 6: Historical and Projected Balance Sheet US$ in millions, unless otherwise stated Fiscal 2016 by Quarter Fiscal 2017 by Quarter Fiscal 2018 by Quarter Fiscal Year Ends November Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17E Aug-17E Nov-17E Feb-18E May-18E Aug-18E Nov-18E E 2018E Current assets Cash and cash equivalents , , , , , , , , , , , , ,706.5 Short-term investments in marketable securities 3, , , , , , , , , , , , , , , , ,578.7 Accounts receivable, net , , , , , ,147.3 Deferred income taxes Prepaid expenses and other current assets Other receivables Total current assets 4, , , , , , , , , , , , , , , , ,692.8 Long-term assets Property and equipment, net Goodwill 5, , , , , , , , , , , , , , , , ,753.6 Intangible assets, net Investment in lease receivable Other assets, net Total assets 11, , , , , , , , , , , , , , , , ,819.9 Current liabilities Trade payable Accrued expenses Current portion of Debt and Capital Leases Accrued restructuring Income taxes payable Current portion of Deferred Revenue 1, , , , , , , , , , , , , , , , ,995.9 Total current liabilities 2, , , , , , , , , , , , , , , , ,926.1 Long-term liabilities Long-term debt 1, , , , , , , , , , , , , , , ,884.1 Deferred revenue, net of current portion Accrued restructuring Income taxes payable Deferred income taxes Other long-term liabilities Total liabilities 4, , , , , , , , , , , , , , , , ,464.7 Total stockholders' equity 7, , , , , , , , , , , , , , , , ,355.1 Total liabilities and stockholders' equity 11, , , , , , , , , , , , , , , , ,819.9 Source: Company data, Credit Suisse estimates Adobe Systems Inc. (ADBE) 6

7 Discounted Cash Flow Figure 7: Discounted Cash Flow US$ in millions, unless otherwise stated F2016 F2017E F2018E F2019E F2020E F2021E F2022E F2023E F2024E F2025E F2026E Total revenue $5,854 $7,161 $8,518 $10,043 $11,742 $13,619 $15,677 $17,915 $20,332 $22,925 $25, % % growth y-o-y 22.3% 18.9% 17.9% 16.9% 16.0% 15.1% 14.3% 13.5% 12.8% 12.0% EBITDAS $2,311 $2,881 $3,502 $4,184 $4,959 $5,833 $6,811 $7,899 $9,102 $10,415 $11, % EBITDAS margin 39.5% 40.2% 41.1% 41.7% 42.2% 42.8% 43.4% 44.1% 44.8% 45.4% 46.1% % growth y-o-y 24.7% 21.5% 19.5% 18.5% 17.6% 16.8% 16.0% 15.2% 14.4% 13.6% EBITAS $1,980 $2,529 $3,145 $3,784 $4,514 $5,343 $6,275 $7,318 $8,475 $9,750 $11, % Operating margin 33.8% 35.3% 36.9% 37.7% 38.4% 39.2% 40.0% 40.8% 41.7% 42.5% 43.4% % growth y-o-y 27.8% 24.3% 20.3% 19.3% 18.4% 17.5% 16.6% 15.8% 15.1% 14.3% Cash tax rate 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% EBITAS * (1-Tax) $1,564 $1,998 $2,485 $2,989 $3,566 $4,221 $4,958 $5,781 $6,695 $7,703 $8, % + D % of revenue 5.7% 4.9% 4.2% 4.0% 3.8% 3.6% 3.4% 3.2% 3.1% 2.9% 2.7% - CapEx (204) (219) (278) (295) (310) (324) (336) (345) (353) (358) (361) % of revenue 3.5% 3.1% 3.3% 2.9% 2.6% 2.4% 2.1% 1.9% 1.7% 1.6% 1.4% + WC % of revenue 4.5% 4.5% 3.5% 3.1% 2.7% 2.3% 1.9% 1.5% 1.1% 0.7% 0.3% ufcf $1,955 $2,451 $2,862 $3,406 $4,018 $4,700 $5,456 $6,287 $7,193 $8,170 $9, % % growth y-o-y 25.4% 16.8% 19.0% 18.0% 17.0% 16.1% 15.2% 14.4% 13.6% 12.7% Shares % growth y-o-y (dilution rate) 8.6% 7.0% 5.9% 5.0% 4.2% 3.6% 3.2% 2.8% 2.4% 2.2% 1.9% UFCF/share $3.88 $4.91 $5.74 $6.84 $8.08 $9.47 $11.01 $12.70 $14.55 $16.55 $ % % growth y-o-y 26.5% 16.9% 19.2% 18.1% 17.1% 16.2% 15.4% 14.6% 13.7% 12.9% F2017E F2018E F2019E F2020E F2021E F2022E F2023E F2024E F2025E F2026E Last Reported Quarter F2017 Q1 Discount multiplier with WACC = 11.3% Quarter March 0% Quarter June 100% Quarter September 100% Quarter December Year PV of ufcf $1,743 $2,473 $2,645 $2,804 $2,949 $3,076 $3,186 $3,277 $3,345 $3,389 Price Per Share F2017 Q1 Valuation Sensitivity Short Term Discount Rate - WACC Total PV of Projected FCF $28,887 $ % 10.3% 11.3% 12.3% 13.3% PV of Terminal Value $35, % Total PV of Operations (Enterprise Value) $64, % Plus: Cash (mrq) $4, % Less: Debt (mrq) -$1, % Equity Value $67, % Shares Outstanding (mrq) 501 Current Value Per Share $ Risk / Reward 9.3% 10.3% 11.3% 12.3% 13.3% 12-month Price Per Share $ % 28.5% 20.3% 12.7% 5.8% -0.6% Current Share Price $ $ % 31.8% 23.3% 15.5% 8.3% 1.8% Discount / Premium to Current Value 6.4% 18.6% 3.00% 35.5% 26.7% 18.6% 11.2% 4.4% Cost of Equity F2017 Q1 F2026E Risk Free Rate 0.30% 2.00% Beta Risk Premium 10.00% 10.00% Cost of Equity 11.50% 13.00% WACC F2017 Q1 F2026E Equity Value (M) $63,919 Debt $1,884 Debt / Equity 2.9% 2.9% Cost of Debt 4.2% 4.2% Tax Rate (mrq) 21.0% 21.0% Net Cost of Debt 3.28% 3.28% WACC 11.26% 12.71% Terminal Multiple F2026E Perpetual Growth Rate 3.00% 3% WACC 12.71% Terminal Multiple (1/(WACC-g)) 10.3x 1-year Forward Multiples EV / Revenue 9.1x EV / EBITDA 22.5x EV / ufcf 26.4x ufcf Yield 3.87% Growth % Upside / Downside 3.50% 39.5% 30.4% 22.0% 14.3% 7.3% 4.00% 44.0% 34.5% 25.8% 17.8% 10.5% Source: Thomson Reuters, Company data, Credit Suisse estimates Adobe Systems Inc. (ADBE) 7

8 Adobe Systems Inc. (ADBE) 8 Multiples Analysis and Sensitivity Figure 8: Multiples Analysis and Sensitivity ADBE.O Valuation Sensitivity Analysis Based on Target Multiple Dollars and Shares in Millions 2016 Target Multiple: 27.3x Multiple Price: $ F2017E EV/OCF Multiple Current Price $ Month Target Multiple Price $ x 21.3x 24.3x 27.3x 30.3x 33.3x 36.3x F2016A F2017E F2018E F2017E F2018E +6%: $ $108 $125 $142 $159 $175 $192 $209 Price $ $ $ $ $ % $ $106 $123 $139 $156 $172 $189 $205 Fully Diluted Shares (MRQ) %: $ $104 $121 $137 $153 $169 $185 $201 Market Capitalization $63,544 $63,544 $63,544 $75,129 $75,129 CS OCF Est.: $ $102 $118 $134 $150 $166 $182 $198-2%: $ $100 $116 $132 $147 $163 $178 $194 Less: Net Cash (MRQ) ($2,764) ($2,764) ($2,764) ($2,764) ($2,764) -4%: $ $99 $114 $129 $144 $159 $175 $190 Net Cash / Share ($5.52) ($5.52) ($5.52) ($5.52) ($5.52) -6%: $ $97 $112 $126 $141 $156 $171 $186 Enterprise Value $60,781 $60,781 $60,781 $72,366 $72,366 *Operating cash flow in $Ms EV / Share $ $ $ $ $ ADBE.O Valuation Sensitivity Analysis Based on Target Price Revenue $5,854 $7,161 $8,518 $7,161 $8,518 Target Price: $ F2017E Target Price EV / Revenue 10.4x 8.5x 7.1x 10.1x 8.5x $105 $120 $135 $150 $165 $180 $195 +6%: $ x 20.4x 23.1x 25.8x 28.5x 31.1x 33.8x Recurring Revenue $4,585 $5,946 $7,217 $5,946 $7,217 +4% $ x 20.8x 23.6x 26.3x 29.0x 31.7x 34.5x +2%: $ x 21.2x 24.0x 26.8x 29.6x 32.4x 35.1x EV / Recurring Revenue 13.3x 10.2x 8.4x 12.2x 10.0x CS OCF Est.: $ x 21.7x 24.5x 27.3x 30.2x 33.0x 35.8x -2%: $ x 22.1x 25.0x 27.9x 30.8x 33.7x 36.6x EBITDA $2,311 $2,881 $3,502 $2,881 $3,502-4%: $ x 22.6x 25.5x 28.5x 31.4x 34.4x 37.3x -6%: $ x 23.0x 26.1x 29.1x 32.1x 35.1x 38.1x EV / EBITDA 26.3x 21.1x 17.4x 25.1x 20.7x *Operating cash flow in $Ms EPS (Pro-forma) $3.01 $3.92 $4.90 $3.92 $4.90 P/E Multiple 42.1x 32.4x 25.9x 38.3x 30.6x PEG Ratio 0.9x 1.1x 1.0x 1.3x 1.2x Operating Cash Flow $2,200 $2,647 $3,219 $2,647 $3,219 Operating Cash Flow / Share $4.39 $5.29 $6.43 $5.29 $6.43 EV / Operating Cash Flow 27.6x 23.0x 18.9x 27.3x 22.5x Free Cash Flow $1,996 $2,428 $2,941 $2,428 $2,941 Free Cash Flow / Share $3.98 $4.85 $5.87 $4.85 $5.87 EV / Free Cash Flow 30.5x 25.0x 20.7x 29.8x 24.6x EV / Free Cash Flow / Growth 0.5x 1.2x 1.0x 1.4x 1.2x FCF Yield 3.1% 3.8% 4.6% 3.2% 3.9% Note: Pro forma, excluding stock compensation expense, amortization of acquired intangibles, and other Source: Thomson Reuters, Company data, Credit Suisse estimates F2017E OCF F2017E OCF 24 March 2017

9 Comparables Figure 9: Covered Subscription Software Comparables ADBE-US Adobe Alarm.com AppFolio Callidus Softw are Cornerstone Ondemand Mindbody Ooma Paycom Softw are Shopify Synchronoss 2U ADBE ALRM APPF CALD CSOD MB OOMA PAYC SHOP SNCR TWOU ULTI WK Rating OUTPERFORM OUTPERFORM NEUTRAL OUTPERFORM NEUTRAL OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM NEUTRAL Target Price $ $37.00 $25.00 $27.00 $43.00 $27.00 $16.00 $56.00 $70.00 $45.00 $43.00 $ $16.00 Year End Dec Dec Dec Dec Dec Dec Jan Dec Dec Dec Dec Dec Dec Shares Outstanding (M) Market Cap (M) 63,544 1, ,349 2,351 1, ,185 6,927 1,263 1,907 5, Ultimate Softw are Workiva Net Cash - MRQ (M) $2,763.5 $133.9 $52.9 $187.3 $302.1 $70.4 $53.2 $30.3 $392.4 ($552.1) $168.7 $89.3 $41.6 Net Cash per Share (MRQ) $5.52 $2.79 $1.53 $2.85 $4.95 $1.64 $2.90 $0.52 $3.83 ($11.26) $3.28 $2.93 $1.02 Enterprise Value (M) 60,781 1, ,162 2,049 1, ,155 6,535 1,815 1,738 5, Price Change 21% Nmf Nmf 19% (34%) Nmf Nmf 76% Nmf 35% 51% (4%) (4%) 2016 Price Change 29% 19% 22% 14% (2%) 8% (51%) 43% 52% (16%) 42% 33% 31% 2017 Price Change to Date 10% 67% 63% (10%) 23% 41% 42% 21% 66% 9% 8% (7%) (22%) Calendar Year ADBE ALRM APPF CALD CSOD MB OOMA PAYC SHOP SNCR TWOU ULTI WK Average* 2016E Revenue (M) 5, E Revenue (M) 7, E Revenue Growth Yr/Yr 22.1% 25.0% 40.8% 19.4% 24.6% 37.1% 17.7% 46.5% 89.7% 5.5% 37.1% 26.4% 23.0% 28.8% 2017E Revenue Growth Yr/Yr 22.3% 24.0% 30.3% 17.8% 13.4% 29.8% 17.2% 29.3% 55.3% 33.3% 30.8% 24.3% 14.5% 22.4% 2016E EV/Sales Multiple 10.4x 5.3x 7.9x 5.6x 4.8x 7.8x 1.2x 9.6x 16.8x 3.0x 8.4x 7.4x 3.2x 6.0x 2017E EV/Sales Multiple 8.5x 4.2x 6.0x 4.8x 4.3x 6.0x 1.0x 7.4x 10.8x 2.2x 6.5x 5.9x 2.8x 4.8x 2016E Rec Revenue Gr Yr/Yr 42.2% 23.1% 36.3% 25.2% 24.6% 35.2% 24.7% 47.1% 68.4% 3.5% 37.1% 26.7% 23.1% 32.0% 2017E Rec Revenue Gr Yr/Yr 29.7% 33.5% 24.4% 21.1% 13.4% 28.3% 20.5% 29.3% 46.4% 38.1% 30.8% 25.3% 15.6% 27.7% 2016E EV/Recurring Sales 13.3x 7.9x 18.9x 7.1x 6.1x 13.1x 1.4x 9.8x 34.6x 4.3x 8.4x 8.8x 4.0x 10.3x 2017E EV/Recurring Sales 10.2x 5.9x 15.2x 5.9x 5.3x 10.2x 1.1x 7.5x 23.7x 3.1x 6.5x 7.0x 3.5x 7.9x 2016E EV/EBITDA Multiple 26.3x 28.3x Nmf 45.4x 51.2x Nmf Nmf 33.5x Nmf 10.4x Nmf 31.1x Nmf 32.3x 2017E EV/EBITDA Multiple 21.1x 21.0x 66.9x 33.9x 36.9x Nmf Nmf 27.4x Nmf 7.0x Nmf 24.3x Nmf 29.8x 2016E EV/OCF Multiple 27.6x 78.5x 72.1x 39.0x 58.1x Nmf Nmf 31.9x Nmf 12.7x Nmf 36.0x Nmf 45.1x 2017E EV/OCF Multiple 23.0x 36.3x 56.7x 24.2x 35.6x Nmf 73.1x 29.6x Nmf 10.4x 72.1x 30.4x Nmf 42.0x 2016E EV/FCF Multiple 30.5x Nmf Nmf 81.9x Nmf Nmf Nmf 57.2x Nmf 21.6x Nmf 63.8x Nmf 51.0x 2017E EV/FCF Multiple 25.0x 49.3x Nmf 39.9x 65.7x Nmf Nmf 51.7x Nmf 17.9x Nmf 55.1x Nmf 43.5x 2016E FCF Yield 3.1% 0.6% Nmf 1.1% 0.5% Nmf Nmf 1.7% Nmf 6.6% Nmf 1.5% Nmf 2.0% 2017E FCF Yield 3.8% 1.8% 0.1% 2.2% 1.3% Nmf Nmf 1.9% 0.0% 8.0% Nmf 1.8% Nmf 2.3% Source: Credit Suisse estimates, company filings, and Thomson Reuters * Includes all Subscription Software companies when averaging Revenue Growth Yr/Yr and EV/Sales M ultiple Source: Thomson Reuters, Company data, Credit Suisse estimates 24 March 2017

10 Companies Mentioned (Price as of 23-Mar-2017) 2U, Inc (TWOU.OQ, $37.02) Adobe Systems Inc. (ADBE.OQ, $126.87, OUTPERFORM, TP $150.0) Alarm.com Holdings Inc. (ALRM.OQ, $31.39) AppFolio Inc. (APPF.OQ, $25.5) Callidus Software Inc. (CALD.OQ, $20.55) Cornerstone OnDemand, Inc. (CSOD.OQ, $38.54) Mindbody Inc. (MB.OQ, $26.95) Ooma Inc. (OOMA.N, $9.65) Paycom Software, Inc. (PAYC.N, $54.09) Shopify Inc. (SHOP.N, $67.58) Synchronoss Technologies, Inc. (SNCR.OQ, $25.76) The Ultimate Software Group, Inc. (ULTI.OQ, $191.49) Workiva, Inc. (WK.N, $15.15) Disclosure Appendix Analyst Certification I, Michael Nemeroff, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Adobe Systems Inc. (ADBE.OQ) ADBE.OQ Closing Price Target Price Date (US$) (US$) Rating 18-Jun N 11-Dec Oct Jan Mar Apr * 17-Mar * Asterisk signifies initiation or assumption of coverage Target Price Closing Price ADBE.OQ 01- Jan Jan Jan N EU T RA L The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fundamentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. Adobe Systems Inc. (ADBE) 10

11 Underweight : The analyst s expectation for the sector s fundamentals and/or valuation is cautious over the next 12 months. *An analyst s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (64% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 14% (53% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) 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(ADBE.OQ) Method: Our target price of $150 for Adobe is supported by applying a 27.3 times multiple to our F2017 EV/OCF estimate and 29.8 times multiple to our EV/FCF estimate, which we view as appropriate given our expectations for continued momentum in its highly profitable Creative Cloud business through increased annual revenue per user and additional use cases. We continue to have a positive assessment of ADBE's broad stack of digital media and digital marketing assets, large market opportunity, and a highly-skilled management team. This results in our Outperform rating. Risk: We see several risks to Adobe's achievement of our $150 target price and Outperform rating, including: (1) economic slowdown which could have an outsized impact given ADBE's increased exposure to consumer discretionary spending, (2) increased competition, particularly in digital marketing, (3) creative cloud subscriber risk, and (4) risk of increased pressure on creative cloud ARPU. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (ADBE.OQ, OOMA.N, CSOD.OQ, SNCR.OQ, TWOU.OQ, CALD.OQ, MB.OQ, PAYC.N, SHOP.N, WK.N, ALRM.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (ADBE.OQ, OOMA.N, SNCR.OQ, CALD.OQ, PAYC.N, SHOP.N) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (OOMA.N, CALD.OQ, SHOP.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (ADBE.OQ, OOMA.N, SNCR.OQ, CALD.OQ, PAYC.N, SHOP.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ADBE.OQ, OOMA.N, CSOD.OQ, SNCR.OQ, APPF.OQ, TWOU.OQ, CALD.OQ, MB.OQ, PAYC.N, SHOP.N, WK.N, ALRM.OQ) within the next 3 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (CSOD.OQ). For other important disclosures concerning companies featured in this report, including price charts, please visit the website at or call +1 (877) For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Adobe Systems Inc. (ADBE) 11