A Baird analyst has lifted his price target by $10 to US$290 for Adobe Systems (NASDAQ:ADBE), after the maker of Photo Shop zipped past Wall Street’s expectations for both its fiscal third-quarter revenue and profit.
Adobe’s software, which includes flagship programs like Creative Cloud and Document Cloud, is ubiquitous and its brand is “synonymous with digital creation”, wrote Baird analyst Rob Oliver in a note to investors.
Adobe made the transition from offering packaged software to charging for subscriptions “nearly flawlessly”, according to Oliver. The company has also incorporated Adobe Sensei, its artificial intelligence program, into its Creative, Marketing and Document Cloud software, which could also push up revenue.
Its acquisitions of Efficient Frontier, Auditude and Fotolia should also improve growth and strengthen Adobe’s position as a strategic vendor to marketing departments.
“The company’s combination of vision and execution, and its impressive target of 20% revenue CAGR FY 15-18E off of a large base make it attractive for a growth investor,” concludes Oliver.
Adobe’s chief risk, according to Oliver, is fierce competition in the digital marketing space which could prove challenging if Adobe fails to keep up with the pace of innovation coming from rivals such as Salesforce.com, IBM and Oracle.
Oppenheimer analysts remain cautious on Adobe's outlook
Oppenheimer analysts also rushed to offer comments about Adobe following “another quarter of good results in fiscal 3Q”. But they took a more skeptical stance, citing concerns about a slowdown in margin improvement stemming from the expense of Adobe’s US$1.68bn acquisition last May of Magento Commerce.
“A slower margin improvement trend could be a headwind for further multiples expansion, though the management commentary on the commerce opportunity and pipeline momentum was strong, suggesting Magento revenue synergies are likely outperforming the plan,” wrote analysts Brian Schwartz, Koji Ikeda and Tyler Page.
Keeping a Perform rating on the stock, Oppenheimer’s team is positive on Adobe’s fundamentals, execution and management, but remains sidelined on the stock’s valuation. “Its growth is fairly reflected in the current multiple after nearly four consecutive years of outperforming benchmarks,” they noted.
Adobe’s fiscal 3Q earnings and revenues again trounce estimates
For the three months ended August 31, the San Jose, California-based company posted earnings of US$1.73 on revenue of US$2.29bn. The results exceeded the US$1.69 on revenue of US$2.25bn, which analysts had penciled in.
The results follow press reports that the company is in negotiations to buy Marketo Inc, a private cloud-based marketing software group.
Any deal between the two companies would enhance Adobe’s position in the arena of cloud-based software as it looks to compete with Microsoft and other bigger rivals.
Adobe has now exceeded Wall Street’s profit and revenue forecasts for the past nine quarters on the back of the robust performance of its digital media business, which includes Creative Cloud, Document Cloud and Experience Cloud.
For the fiscal third quarter, revenue from its digital media segment came to US$1.61bn, with Creative Cloud contributing US$1.36bn while Document Cloud accounted for US$249mln.
Revenue from subscription products, meanwhile, accounted for US$2.02bn of its total revenue of US$2.29bn.
At the end of August, Adobe was sitting on cash and cash equivalents of US$1.75bn while its debt amounted to US$1.87bn.
Adobe repurchased about 2.9mln shares during the quarter and its cash flow from operations came in at US$955mln.