Analysts Unshaken After Adobe Systems Incorporated Weak Guide

Analysts Unshaken After Adobe Systems Incorporated Weak Guide

Adobe Systems released its latest earnings report after closing bell Tuesday night, coming out ahead of consensus estimates on earnings for its fiscal second quarter and in-line on revenue but weak on guidance. The company posted $1.4 billion in revenue, representing a 20.4% year over year increase. Adjusted earnings were 71 cents per share, beating the Street by 3 cents per share.

Management guided for third quarter revenue of $1.42 billion to $1.47 billion, which was light of the Street’s estimate of $1.47 billion. Their outlook for earnings is 69 cents to 75 cents per share, which compares to the consensus of 71 cents per share.

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Adobe’s earnings were “fine

Credit Suisse analyst Michael Nemeroff and team called Adobe Systems’ earnings results “fine” as Digital Media ARR revenue beat guidance, coming in at $3.413 billion, although it missed the consensus of $3.42 billion. However, they noted that the small miss was the result of underperformance in Adobe’s Document Cloud ARR. Creative ARR came out ahead of consensus at $2.998 billion. Adobe also reported solid growth in Creative Cloud subscribers and strong renewals of ETLA, plus rising average revenue per user trends.

The Credit Suisse team said although the company’s results and third quarter outlook “could have been cleaner,” the second quarter was mostly in line with their view “after normalizing for the puts/takes in timing.” However, they still think the company’s story is intact” and that it still has several growth initiatives spanning multiple years going forward. They maintained their $105 per share price target and Neutral rating on Adobe Systems following last night’s earnings report.

More needed from Adobe Systems

Morgan Stanley analyst Keith Weiss and team said Adobe’s results were about as they expected but could be less than what’s needed They have an Equal-weight rating and $100 per share price target on the company’s stock. They also believe Adobe’s core cloud transition story is on track, but they believe that investors need to see strong beat and raise quarters before they will push Adobe Systems shares higher than the current multiple of 24 times 2017 calendar year earnings per share.

The Morgan Stanley team said “elevated” expectations were the main force working against the company as the results were “otherwise healthy.” They also don’t see the third quarter guidance miss as an actual miss because they attribute it to a “case of consensus mis-modeling QoQ movements.”

Shares of Adobe Systems slumped by as much as 4.93% to $94.80 during regular trading hours on Wednesday.

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