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Adobe Inc (NASDAQ:ADBE) Gets Ready to Rock or Be Rocked

Adobe Inc (NASDAQ:ADBE) will report fourth quarter (Nov) results this afternoon and management will host a call at 5:00 ET. In this environment, we expect the stock’s performance relative to the quality of the data to set the tone for a number of cloud plays into year-end. The market has not been kind to the space in recent months after being perhaps too kind in the months before. This is a big market indicator as well as a statement about how willing investors will be to assign the powerful premium to the space.

As far as company-specific issues, analysts are looking for Q4 non-GAAP EPS up 49% to $1.88 with revenue up 21% to $2.43 billion. Adobe guided for Q4 EPS of $1.87 on revenue of $2.42 billion with digital media revenue up 22%, digital experience revenue up 20% and net new digital media annualized recurring revenue (ARR) of ~$385 million — a key metric.

Adobe Inc (NASDAQ:ADBE) will provide guidance for the first quarter on its website. The Street expects Q1 non-GAAP EPS up 21% to $1.87 with revenue up 21% to $2.52 billion.

Adobe has beaten estimates on the top and bottom line nine quarters in a row. Last quarter, the company guided EPS and revenue just above consensus for the third quarter in a row. In late September, Adobe announced the $4.75 billion cash acquisition of Marketo, a market-leading cloud platform for B2B marketing engagement. At the Adobe MAX Creativity Conference in October, the company offered preliminary fiscal 2019 revenue slightly above consensus calling for total, digital media segment, and digital experience segment revenue all up 20%, ~$1.4 billion in net new Digital Media annualized recurring revenue (ARR) and Digital Experience subscription bookings up 25%.

Adobe has a ~$120 billion market cap.

While the ~12x sales multiple appears aggressive, investors are more focused on the ~27x FCF multiple and 32x earnings multiple as the company continues to grow the top line 20% and expand margins. As a more mature software-as-a-service company that is growing free cash flow, the stock has held up relatively well vs. smaller cloud peers during the recent market correction.

The stock is down ~10% from all-time highs three months ago. The 50-day and 200-day MA’s have converged to the ~$244 level since the recent consolidation.

For those keeping score on the vol/beta indications into the print, the options market is pricing in a ~5% move in the stock tomorrow.

 

Top Down View

Adobe Inc (NASDAQ:ADBE) bills itself as a diversified software company worldwide.

Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. Its flagship product is Creative Cloud, a subscription service that allows customers to download and install the latest versions of its creative products.

This segment serves traditional content creators, Web application developers, and digital media professionals, as well as their management in marketing departments and agencies, companies, and publishers. The company’s Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured, and optimized. This segment provides analytics, social marketing, targeting, media optimization, digital experience management, cross-channel campaign management, audience management, and video delivery and monetization solutions to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers, and chief revenue officers. Its Print and Publishing segment offers products and services, such as e-learning solutions, technical document publishing, Web application development, and high-end printing, as well as publishing needs of technical and business, and original equipment manufacturers (OEMs) printing businesses.

The company markets and licenses its products and services directly to enterprise customers through its sales force, as well as to end-users through app stores and through its Website at adobe.com. It also distributes products and services through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers, and OEMs.

The company was formerly known as Adobe Systems Incorporated and changed its name to Adobe Inc. in October 2018. The company was founded in 1982 and is headquartered in San Jose, California.

Adobe Inc (NASDAQ:ADBE) generated sales of $2.3B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 3.6% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($4.9B against $3.8B).

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