North America

Earnings Preview: Adobe Systems Q3 2017 (ADBE)

By: Craig Bowles

Overview

Adobe Systems, Inc. (ADBE) is slated to report 3Q 2017 earnings after the close on Tuesday, September 19th. The earnings release is expected at approximately 4:05 p.m. ET with a 5:00 p.m. conference call webcast at Adobe Investor Relations. Adobe operates in three segments: Digital Media, Digital Marketing, and Print Publishing. The company is a component of the S&P 500 and NASDAQ 100 indexes.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $1.00. The Street estimate is $1.01 (range $0.98 to $1.06) (Yahoo! Finance). Consensus was $0.97 three months ago.
  • Revenues: Company guidance is $1.815 bln. Analysts expect a 24.2% y/y increase to $1.82 bln (range $1.79 bln to $1.84 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance in December was $3.75. The consensus estimate is $4.06.
  • Revenue Guidance for FY2017: Company guidance was previously given at $6.95 bln. Analysts expect an increase of 23.3% y/y to $7.22 bln. Consensus was $7.17 bln three months ago.
  • Adobe P/E of 54.5 compares to a 5-year average of 73.4; P/B of 9.9 compares to a 5-year average of 4.8; P/S of 12.0 compares to a 5-year average of 7.4; P/CF of 30.3 compares to a 5-year average of 29.8.
  • Analysts view Adobe with 24 Buy, 5 Hold, and 1 Sell ratings, according to MarketBeat.com.
  • Adobe insiders sold 97,191 shares over the last three months and 1,308,125 shares in the past year. (source: NASDAQ.com) In January 2017, the company began a $2.5 billion repurchase of stock through FY 2019.
  • Adobe results could have an impact other application software companies such as AutoDesk (ADSK), Sonic Foundry (SOFO), and DTS Inc. (DTSI).
  • Adobe shares have a 1-day average price change on earnings of 3.54%. Options are pricing in an implied move of 3.91% off earnings.

Recent News

  • 09/12: Jefferies reiterated a Buy rating on Adobe citing “Digital Media segment should benefit from ARR that’s on track to exceed $5Bn by year-end, steady growth in new subs (especially international), positive ARPU trends, and boost from stock image (~Fotolia) and digital video products. Digital Marketing segment is most levered to internet trends in marketing, advertising, & analytics,” according to a post on StreetInsider.com.
  • 09/07: Adobe and Microsoft expand strategic partnership to drive e-signatures and collaboration among teams in the cloud.
  • 08/29: Adobe wants to bring its AI smarts to email marketing campaigns, according to a post on TechCrunch.com.
  • 08/08: Four years ago, Adobe opted to offer its solutions solely on a subscription basis. The wonderful results are due to that it simply costs less to make a one-time sale that drives revenue for years rather than rely on software package sales, according to a post on Fool.com.
  • 07/25: Adobe Systems will stop updating and distributing its widely-used Flash Player software program at the end of 2020.

Technical Review

After having consolidated from 2005 to 2012 at around $28, Adobe more than quintupled.  The stock has found support around the 50-day moving average this year. The upwardly sloping 200-day moving average had previously acted as support with a retest every four or five months before 2017. Balance area support is $132 to $144.  (Chart courtesy of StockCharts.com)

Summary

Adobe’s new user growth is supported by their cloud subscription service and digital marketing platform for which analysts see few credible alternatives. Valuation is the biggest worry at this point. Insider selling slowed further. Over the last four quarters, the company has beaten estimates an average of 5c. Estimize consensus for Non-GAAP EPS of $1.03 on revenue of $1.831 bln compares to analyst consensus of $1.01 on revenue of $1.82 bln. Guidance discussed in the earnings call also affects the market reaction.

 

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