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Adobe (ADBE) Gears Up for Q3 Earnings: What's in the Cards?

Zacks Equity Research

Adobe Systems Inc. ADBE is set to report fiscal third-quarter 2020 results on Sep 15. In the last reported quarter, the software giant delivered an earnings surprise of 4.3%.

For the fiscal third quarter, the Zacks Consensus Estimate for earnings has remained stable at $2.40 per share over the past 30 days. This indicates growth of 17.1% from the year-ago reported figure.

The consensus mark for revenues is pegged at $3.15 billion, implying growth of 11.24% from the year-ago reported figure.

Let’s see how things have shaped up for this announcement.

Adobe Systems Incorporated Price and EPS Surprise

Adobe Systems Incorporated Price and EPS Surprise
Adobe Systems Incorporated Price and EPS Surprise

Adobe Systems Incorporated price-eps-surprise | Adobe Systems Incorporated Quote

Focus on Digital Media Business

Demand for Adobe’s Digital Media Solutions is expected to have increased in the fiscal third quarter. Impressive growth in Creative Cloud and Document Cloud business lines is likely to have resulted in strong Digital Media ARR (Annualized Recurring Revenues) in the to-be-reported quarter.

Markedly, the segment comprises Creative Cloud and Document Cloud (DC). Net new subscriptions, adoption of enterprise services and focus on high-potential segments like education are likely to have driven Creative ARR in the fiscal third quarter.

As schools have faced physical closure and moved online, the company has been making efforts to provision students at home with Creative Cloud and provide teachers distance learning support, thereby expanding its customer base.

In addition, the company witnessed increased demand for professional video products with strong engagement for Adobe Premiere Pro and After Effects. This is expected to have driven its creative revenues.

DC ARR is expected to have increased in the quarter to be reported, driven by solid enterprise adoption of Acrobat and Document Cloud services, as well as strong performance of Adobe Sign.

The Zacks Consensus Estimate for Digital Media is pegged at $2.28 billion, indicating growth of 16.2% year over year.

Strength in Digital Marketing Business

Within the Digital Marketing segment, Adobe Experience Cloud revenues are anticipated to have improved in the quarter to be reported. Adobe Experience Cloud includes Adobe Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud.

The ever-increasing demand for data and insights, content and personalization, customer journey management, commerce and advertising should have expanded revenues in this segment.

The shift to remote work is expected to have further driven a surge in demand for digital documents and increased the use of web-based PDF services and the number of documents shared in Acrobat. This is expected to have driven strong adoption for Adobe Sign, the company’s cloud-based electronic signature solution.

New capabilities in Adobe Target are expected to have further enhanced customer recommendation and targeting, as well as boosted revenues from this segment.

Notably, it has been able to create a niche for itself in the cloud software market. Strong demand for the company’s innovative solutions and products, strength across geographies, along with growing subscription for cloud application are likely to reflect on the to-be-reported quarter’s results.

The Zacks Consensus Estimate for Digital Experience is pegged at $827 million, indicating growth of 0.7% year over year.

Management’s Expectations

For third-quarter fiscal 2020, Adobe expects year-over-year revenue growth of 16% from Digital Media. Digital Experience segment revenues are expected to remain flat on a year-over-year basis, while digital experience subscription revenues (including Advertising Cloud) are likely to decline 5%.

Management expects total revenues and non-GAAP earnings to be $3.15 billion and $2.40 per share, respectively.

What Our Model Says

Our proven model does not predict an earnings beat for Adobe this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Adobe has a Zacks Rank #3.

Stocks to Consider

You may consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

PPG Industries, Inc. PPG has an Earnings ESP of +1.31% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ericsson ERIC has an Earnings ESP of +26.00% and a Zacks Rank #3.

KeyCorp KEY has an Earnings ESP of +65.90% and a Zacks Rank #3.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

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PPG Industries, Inc. (PPG) : Free Stock Analysis Report
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
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KeyCorp (KEY) : Free Stock Analysis Report
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