Can Adobe Maintain its Winning Streak?

Adobe Systems Inc. (ADBE) Information Technology - Software | Reports September 20, After Market Closes

Key Takeaways

• The Estimize consensus is looking for earnings per share of 74 cents on $1.46 billion in revenue, 2 cents higher than Wall Street on the bottom line and right in line on the top
• Record growth continues to be driven by increasing adoption of its Creative Cloud and Marketing Cloud products
• Slowing growth, lower end market demand and increasing competition pose a problem in the quarter to be reported and future quarters

Adobe has delivered steadily improving earnings and revenue for over 2 years and counting. That consists of continually beating on both the top and bottom line during this streak. Yet over this time, growth has decelerated, causing share prices to be relatively flat year to date. Current expectations have Adobe pegged for another strong quarter which also entails slowing growth.

The Estimize consensus is calling for earnings per share of 74 cents, 37% higher than the same period last year. That estimate has risen 2% since Adobe’s most recent report in June. Revenue for the period is estimated 20% higher at $1.46 billion, marking a 5th consecutive quarter of 20%+ sales growth. Shares are up about 22.5% in the past 12 months and historically gain an additional 2% following an earnings report. 

A large portion of Adobe’s recent gains are driven by innovation in the Creative Cloud and Marketing Cloud businesses. Creative Cloud continues to see increasing adoption rates, driving digital media annualized recurring revenue to $3.41 billion in the second quarter, a $285 million increase quarter of quarter. Meanwhile, Adobe Marketing Cloud recorded historic revenue of $385 million, representing 18% growth from a year earlier. Strong adoption rates continue to drive robust revenue, profit and cash flow in recent quarterly reports. This should continue to serve as a catalyst for tomorrow’s and future reports.

That said, investors will be carefully watching the company’s annualized recurring revenue. If this begins to slow down it indicates that users are letting their subscriptions expire or the company isn’t doing a good job of upselling its existing user base. Moreover, lower end market demand and increasing competition from companies like Microsoft (MSFT) could weigh down earnings. 

Photo Credit: midiman