Could This Tech Company Crumble On Earnings?

Photo Credit: Charis Tsevis

Adobe Systems Inc. (ADBE) Information Technology - Software | Reports June 21, After Market Closes

Over the last 2 years, Adobe (ADBE) has followed a continual upward trend, beating Wall Street on both earnings and revenue estimates in each of its last 5 quarters. Share prices have followed suit and are now up 23.31% over the last 12 months. Expectations are high that Adobe can produce another strong quarterly report, especially with the favorable year over year comparisons.

The Estimize consensus is calling for EPS of $0.70 and revenue expectations of $1.40 billion, 2 cents higher than Wall Street on the bottom line and $10 million greater on the top. On a YoY basis this predicts growth of 45% on earnings and 21% in sales. Given the recent streak of robust earnings it comes as no surprise that the company beats Estimize and Wall Street in 78% and 93% of reported quarters, respectively. Last quarter’s record revenue number has good chance of being topped tomorrow thanks to strong innovations in creative and marketing cloud segments.

The new age of cloud computing has been key to Adobe’s success. Currently its two biggest drivers Creative Cloud and Marketing Cloud products continue to see record adoption rates. Early indications look as if increasing booking growth will carry Q2 earnings. Digital media encompasses the company’s flagship Creative Cloud product which continues to grow close to 50% year over year. As a result digital media annualized recurring revenue (ARR) reached $3.13 billion, increasing by $246 million.

As conventional licensing software becomes a thing of the past, Adobe has seen an uptick in adoption of its creative cloud offerings. Marketing Cloud finished the last quarter with sales of $377 million, paired with strong bookings growth and significant customer adoption of SaaS-based solutions.

However, lower end market demand, significant exposure in volatile European markets, and increased competition are significant sources of concern. Earlier this year, Google introduced a new enterprise marketing tool aimed to compete with Adobe’s core products. While it is still in its early stages of development, Google’s scale and reach is enough to cause concern in the Adobe camp. Rackspace has also targeted Adobe users, offering a managed cloud service devoted to marketing leaders and technology teams. With cloud services still growing at a rapid clip, new competition is emerging out of nowhere trying to get a piece of the pie.