Adobe Shares Tumble Premarket On Weak 4Q View, CS5 Sales
Last Update: 9/22/2010 9:16:44 AM
By Shara Tibken Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Adobe Systems Inc. (ADBE) shares tumbled in premarket trading Wednesday, a day after the software market reported weakening sales of its flagship Creative Suite product and issued disappointing fourth-quarter guidance.
Adobe late Tuesday said that it has seen a weakening of sales in its Creative Solutions division in the U.S. education market--its largest sector market--and in all products in Japan, Adobe's largest geographic market after the U.S. The company expects that weakness to continue in the current quarter, causing it to issue lackluster sales guidance.
Investors had been looking for CS5, the most recent iteration of Adobe's popular software line, to be as strong as CS3 and boost sales, but they instead were disappointed by the results.
"Although management is still bullish about CS5, we remain cautious about its ability to reach CS3 levels and feel Street expectations are overly optimistic," Oppenheimer analyst Brad Reback said.
Adobe shares recently tumbled 21% to $25.99 in premarket trading, wiping away the 19% jump in the stock this month. Despite those gains, shares were still down 10% this year.
Shares had been pressured by a strained relationship with Apple Inc. (AAPL) after Apple banned Adobe's Flash program from its popular iPhone and iPad. Apple reversed course earlier this month, easing its app-developer restrictions to allow programs made using Flash, but the tech giant still won't allow iPhone users to access Flash-based websites or apps.
Adobe said Tuesday the short-term impact of the change on product sales "was muted."
The company forecast fourth-quarter earnings of 48 cents to 54 cents a share on revenue of $950 million to $1 billion. Analysts, on average, had estimated 53 cents and $1.03 billion, respectively, according to a poll by Thomson Reuters.
The weak guidance led to a host of analyst downgrades, including Credit Suisse analyst Philip Winslow, who said he's struggling to identify catalysts for at least the next one to two quarters. He lowered his rating to neutral from buy.
Meanwhile, Jefferies analyst Ross MacMillan noted Adobe appears to be in transition from the creative business driving most of its growth to other areas, like "enterprise collaboration," driving growth.
Adobe "has made transitions before, but clearly there is risk and the sheer size of the business makes it harder," MacMillan said.
To be sure, other analysts see the selloff as a buying opportunity. Avian Securities analyst Jeff Gaggin said he's not throwing in the towel with Adobe shares off about 20%.
"Whenever there's a product cycle, everyone gets exited about Adobe, but when it's over, they throw it out," Gaggin said. "We're trying to be a little bit more longer-term oriented about the name."