Adobe Systems is scheduled to release its next earnings report on Thursday after closing bell. On average, analysts are expecting revenue of $1.3 billion and adjusted earnings of 60 cents per share. Shares of Adobe slumped in afternoon trading today, falling by as much a 3.45% to $89.39 per share.

Adobe Systems

What to expect in Adobe Systems’ earnings report

In a report dated Dec. 4, Susquehanna Financial Group analyst J. Derrick Wood said he expects Adobe Systems to report a 3% sequential increase in new subscribers for its Digital Media business, compared to the previous quarter’s 4% increase. He expects a 12% quarter over quarter increase in Digital Media ARR, compared to the previous quarter’s 13% increase.

He said their checks suggested a number of “attractive” promotions for Adobe’s Team subscriptions through resellers, which he believes drove some “incremental CS migration activity.” He also remains encouraged about the integration of Fotolia into Adobe’s Creative Cloud, which he thinks should lift Digital Media ARR to drive revenue increases on purchase of stock content.

The analyst expects Adobe’s Digital Marketing segment to report a 17% year over year increase in Marketing Cloud revenue, compared to the previous quarter’s increase of 27%.

Adobe’s fourth quarter by segment

Wood is ahead of consensus estimates on Adobe Systems’ total revenue at $1.321 billion. He’s expecting Digital Marketing revenue to come in at $419 million, which is slightly behind Wall Street’s estimate of $427 million. He’s ahead of consensus on Digital Media revenue at $857 million, compared to the consensus of $840 million. For the Print & Publish segment, the analyst expects $46 million in revenue, which is in line with Wall Street’s estimate.

He estimates that Adobe added 705,000 Digital Media subscribers during the fourth fiscal quarter, bringing the total number of subscribers to 6 million. He projects $2.96 billion in Digital Media AARR, including Creative Cloud at $2.566 billion and Document Services at $393 million.

Adobe Systems may keep outperforming

Wood noted that in the last quarter, Adobe Systems saw benefits from some big deals on perpetual licenses. Also this quarter should be impacted by a longer time to ramp on recognition of some revenues because some of the company’s projects are getting larger.

He is still constructive on the company’s Web Analytics division, as its revenue is influenced by e-commerce activities. He noted the numerous reports of strong sales around the Thanksgiving shopping days, which marked a 17% year over year increase in sales. Adobe’s Digital Index predictor had estimated a 13% increase. Wood said these numbers also suggest good things for the company’s Marketing business because email usually drives about one-quarter of all e-commerce sales during the holiday shopping period.

The analyst also noted that at the recent Analyst Day, Adobe Systems management set conservative estimates due to currency headwinds and a shift from upfront revenue to ratable revenue. They also set forth a “bullish tone” on the company’s direction.

As a result, Wood believes Adobe stock will continue to outperform. He has a Positive rating and $97 per share price target on Adobe Systems