STOCKREPORTS		 Adobe Systems Incorporated Nasdaq Symbol ADBE
In S&P 500
19-JUL-97 Industry:
Computer (Software & Services)		 Summary: Adobe's software is used to create and print integrated text and graphics for electronic printing and publishing.

Recent Price 37.06
52 Wk Range 46.38 - 30.88		 Yield 0.5%
12-Mo. P/E 14.9

Quantitative Evaluation:
Outlook (1 Lowest - 5 Highest)
5+
Fair Value
54.10
Risk
MEDIUM
Earn/Div Rank
B+
Technical Evaluation:
BEARISH since 04/97
Rel. Strength Rank (1 Lowest - 99 Highest)
16
Insider Activity
Neutral

Overview 03-JUL-97

Revenues are expected to rise about 15% in FY 97 (Nov.), reflecting strong demand for upgraded versions of Photoshop, Illustrator, PageMaker and other graphics and publishing products, continued market acceptance of Acrobat, gains by PageMill and SiteMill, new products designed for the Internet, and the introduction of new printers incorporating Adobe's PostScript page description language. The company's product line is fresh with upgrades recently shipped for its major products for both the Windows and Macintosh environments. Operating margins should narrow, due to the implementation of strategic initiatives, including increased promotional activities and system upgrades. EPS comparisons should be aided by the higher revenues and a stock repurchase program, but will be penalized by the absence of $0.38 a share of nonrecurring gains recorded in FY 96.

Valuation 03-JUL-97

The shares dropped after the announcement of FY 97's second quarter results, which were below expectations. However, future results should benefit from demand for product upgrades, as well as promotional activities. In addition, the company's new venture stock dividend program should unlock some of the hidden value of its significant venture investments. Adobe currently has investments in 23 companies in its venture investing program. As of mid-March 1997, it had a cumulative cost basis of $60.1 million in venture investments, and had received $72.6 million in net cash proceeds from its venture investments; its current portfolio of venture investments was valued at $72.2 million at March 14, 1997, based on very conservative accounting methods. The shares were recently trading at about 17X our FY 97 EPS estimate. We expect the stock to outperform the market over the next 12 months.

Key Stock Statistics

S&P EPS Est. 1997 2.20
P/E on S&P Est. 1997 16.8
S&P EPS Est. 1998 2.60
Dividend Rate/Share 0.20
Shs. outstg. (M) 72.9
Avg. daily vol. (M) 1.566
Tang. Bk. Value/Share 11.62
Beta 0.94
Shareholders 2,200
Market cap. (B) $ 2.7
Inst. holdings 71%
Value of $10,000 invested 5 years ago:NA

Fiscal Year Ending Nov. 30

Revenue (Million $)
1997 1996 1995 1994 1993 1992
Q1 226.5 193.6 188.9 135.9 68.50 62.60
Q2 228.3 204.3 189.5 149.8 79.63 69.60
Q3 NA 180.9 183.1 146.6 78.76 63.00
Q4 NA 207.7 200.9 165.4 86.53 70.70
Year NA 786.6 762.3 597.8 313.5 265.9

Earning Per Share ($)
1997 1996 1995 1994 1993 1992
Q1 0.63 0.44 0.50 0.31 0.33 0.29
Q2 0.54 0.29 0.47 0.28 0.31 0.32
Q3 E0.45 0.40 0.44 0.29 0.24 0.15
Q4 E0.58 0.92 -0.16 -0.79 0.34 0.19
Year E2.20 2.04 1.26 0.10 1.22 0.93

Dividend Data (Dividends have been paid since 1988)
Amount ($) Date Decl. Ex-Div. Date Stock of Record Payment Date
0.050 Dec. 18 Jan. 14 Jan. 16 Jan. 30 '97
0.050 Mar. 14 Mar. 27 Apr. 01 Apr. 15 '97
0.050 Jun. 18 Jul. 02 Jul. 07 Jul. 21 '97
Stk. Apr. 24 Jul. 29 Jul. 31 Aug. 27 '97

Business Summary 03-JUL-97

Adobe Systems develops and supports computer software used to create, display, print and communicate all forms of electronic documents. Products are delivered through two divisions: the System Products Division (SPD), which develops technology for information distribution, and the Application Products Division (APD), which develops packaged applications for information authoring.

The SPD supports system-level software tools and technologies that are embedded within the branded products of OEMs. The primary offering within the SPD is the PostScript interpreter, which executes page descriptions generated from applications that support the PostScript language to produce documents containing multiple typefaces and graphics, including charts, drawings and photographic images. Adobe also offers Internet related products including Acrobat, for information publishing and distribution; PageMill for the creation of Web Pages; and SiteMill, a Web authoring and site management product. Royalties from licensing products, primarily the PostScript interpreter, accounted for 25% of FY 96 (Nov.) revenues, up from 24% in FY 95.

The APD is divided into three product units: graphics, publishing and consumer products. Graphics products include Photoshop, an image enhancement tool; Illustrator, a leading illustration and page design tool; and PageMaker, a leading desktop publishing product. Publishing products include FrameMaker, which is used for authoring and publishing long, complex documents. Consumer products include PhotoDelux, which allows for photographs to be modified and personalized, and other software designed for personal use. Application sales accounted for 75% of FY 96 revenues, versus 76% in FY 95.

The company has an investment program, including Adobe Ventures L.P., direct investments and other activities. These investments introduce ADBE to companies that are strategic to its software business. The program gives ADBE a window on emerging technologies and markets, and funds companies that help make its products available to its customers. As of March 1997, the program consisted of investments in 23 companies.

Important Developments

Jun. '97 The company announced the first dividend of venture investment stock payable in the form of one share of Netscape Communications Corp. common stock for each 100 shares of Adobe common stock. The company will announce, from time to time, the dividend of a portion of the marketable stock it holds in publicly traded companies, as a result of prior investments it has made in these companies.

Capitalization

Long Term Debt: None (5/97).

Per Share Data ($)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Tangible Bk. Val. 9.89 9.59 7.47 6.18 5.06 4.13 2.57 1.46 1.07 0.57
Cash Flow 2.78 2.07 0.97 1.51 1.13 1.27 1.02 0.86 0.54 0.24
Earnings 2.04 1.26 0.10 1.22 0.93 1.13 0.91 0.77 0.49 0.22
Dividends 0.20 0.20 0.20 0.19 0.16 0.15 0.11 0.09 0.04 Nil
Payout Ratio 10% 16% NM 15% 17% 13% 13% 11% 8% Nil
Prices - High 64 1/4 74 1/4 38 1/2 37 34 1/4 33 7/8 25 3/8 15 12 3/4 14
- Low 28 1/2 27 1/4 20 1/2 15 5/8 12 5/8 13 3/8 8 1/2 7 5 7/8 3 1/4
P/E Ratio - High 31 59 NM 30 37 30 28 19 26 66
- Low 14 22 NM 13 14 12 9 9 12 15

Income Statement Analysis (Million $)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Revs. 787 762 598 313 266 230 169 121 83.0 39.0
Oper. Inc. 229 242 182 94.5 83.5 84.6 67.0 55.3 36.2 17.2
Depr. 55.6 60.4 53.2 13.6 8.8 6.7 4.9 3.7 2.1 1.0
Int. Exp. NM Nil Nil Nil Nil NA NA NA NA Nil
Pretax Inc. 245 164 40.0 91.1 69.5 83.6 66.3 54.9 35.8 16.9
Eff. Tax Rate 37% 43% 84% 37% 37% 38% 40% 39% 41% 47%
Net Inc. 153 93.5 6.3 57.0 43.6 51.6 40.1 33.7 21.1 9.0

Balance Sheet & Other Fin. Data (Million $)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Cash 564 516 400 236 160 116 70.0 50.0 35.0 17.0
Curr. Assets 737 693 532 304 224 162 109 77.0 52.0 25.0
Total Assets 1,012 885 626 353 281 221 146 94.0 65.0 32.0
Curr. Liab. 231 186 169 73.7 56.8 36.9 37.0 34.1 19.0 7.9
LT Debt Nil Nil Nil Nil Nil Nil 0.3 0.5 0.9 Nil
Common Eqty. 707 698 457 279 225 183 108 59.0 44.0 24.0
Total Cap. 707 698 457 279 225 184 109 60.0 46.0 24.0
Cap. Exp. 45.9 34.1 28.5 14.4 11.9 12.2 7.4 5.2 5.0 3.0
Cash Flow 209 154 59.5 70.6 52.4 58.3 44.9 37.4 23.2 10.0

Curr. Ratio 3.2 3.7 3.2 4.1 4.0 4.4 2.9 2.3 2.7 3.2
% LT Debt of Cap. Nil Nil Nil Nil Nil Nil 0.2 0.8 1.9 Nil
% Net Inc.of Revs. 19.4 12.3 1.1 18.2 16.4 22.5 23.7 27.8 25.3 22.8
% Ret. on Assets 16.2 11.7 1.1 17.9 17.3 27.5 32.9 42.7 42.9 34.3
% Ret. on Equity 21.8 15.4 1.5 22.5 21.4 34.8 47.4 66.2 61.9 48.2

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--345 Park Avenue, San Jose, CA 95110-2704. Tel--(408) 536-6000. Fax--(408) 537-6000. Website--http://www.adobe.com Chrmn & CEO--J. E. Warnock. Pres & COO--C. M. Geschke. VP, Treas & Investor Contact--Jim Viglienzone. Secy--C. M. Pouliot. Dirs--G. P. Carter, C. M. Geschke, W. R. Hambrecht, R. Sedgewick, W. J. Spencer, J. E. Warnock, D. W. Yocam. Transfer Agent & Registrar--Chase Bank, SF. Incorporated--in California in 1983; reincorporated in Delaware in 1997. Empl-- 2,411. S&P Analyst: Brian Goodstadt


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