North America

Earnings Preview: Adobe Systems Q4 2016 (ADBE)

By: Craig Bowles

Overview

Adobe Systems, Inc. (ADBE) is slated to report 4Q 2016 earnings after the close on Thursday, December 15th. The earnings release is expected at approximately 4:05 p.m. EST 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.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is for $0.83 to $0.89 (from the September earnings call). The Street estimate is $0.86 (range $0.83 to $0.89) (Yahoo! Finance). Consensus was $0.78 three months ago.
  • Revenues: Company guidance is for $1.55 bln to $1.60 bln. Analysts expect a 21.5% y/y increase to $1.59 bln (range $1.57 bln to $1.61 bln).
  • Non-GAAP Earnings Per Share (EPS) Guidance for FY2017: Company guidance is for $3.75. The consensus estimate is $3.84.
  • Revenue Guidance for FY2017: Company guidance is for $7.00 bln. Analysts expect an increase of 21.4% y/y to $7.09 bln.
  • Adobe P/E of 51.8 compares to a 5-year average of 64.7; P/B of 6.9 compares to a 5-year average of 4.0; P/S of 9.2 compares to a 5-year average of 6.2; P/CF of 26.2 compares to a 5-year average of 26.1.
  • Analysts view Adobe with 20 Buy, 6 Hold, and 0 Sell ratings, according to MarketBeat.com.
  • Adobe insiders show no trades over the last three months but sold 15,384,323 shares in the past year without a single purchase. (source: NASDAQ.com) In January 2015, the company approved a $2.0 billion repurchase of stock through FY 2017.
  • 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 4.46%. Options are pricing in an implied move of 5.22% off earnings.

Recent News

  • 11/02: For 2017, Adobe expects earnings excluding items of $3.75 a share on revenue of $7 billion versus analyst consensus of $3.86 on $7.1 billion in revenue, according to a post on Marketwatch.com.
  • 11/02: Adobe acquired video ad company TubeMogul (TUBE) for $540M, according to a post on Techcrunch.com.
  • 10/18: Leaked email shows Salesforce (CRM) once had Adobe on its target acquisition list, according to a post on Businessinsider.com.
  • 09/27: Cowen & Co. reiterated an Outperform rating on Adobe citing “consolidation onto Azure will help better integrate ADBE’s solutions that were historically run in different clouds,” and that having Microsoft re-sell Adobe’s “Marketing Cloud” programs will give the company leverage, according to a post on Barron’s.com.

Technical Review

After having consolidated from 2005 to 2012, Adobe more than tripled to the recent October 24th all-time high of $111.09.  The upwardly sloping 200-day moving average has acted as support. Point and figure technicians increased their target to $130 after having met their bullish price objective of $104 but these secondary target increases are often ill-timed.  (Chart courtesy of StockCharts.com)

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Summary

Adobe’s new user growth is supported by their cloud subscription service and digital marketing platform for which analysts see few credible alternatives. Insider selling subsided but not having bought even one share in the past year is somewhat amazing. Over the last four quarters, the company has beaten estimates an average of 3c. Estimize consensus for Non-GAAP EPS of $0.87 on revenue of $1.584 bln compares to analyst consensus of $0.86 on revenue of $1.59 bln. Guidance discussed in the earnings call also affects the market reaction but 2017 already has reduced expectations following guidance given at the beginning of November.

 

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