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Adobe (ADBE) Gears Up for Q4 Earnings: What's in the Cards?

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Zacks Equity Research
·4 min read
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Adobe Systems Inc. ADBE is set to report fiscal fourth-quarter 2020 results on Dec 10. In the last reported quarter, the software giant delivered an earnings surprise of 7.1%.

For the fiscal fourth quarter, the Zacks Consensus Estimate for earnings has remained stable at $2.65 per share over the past 30 days. This indicates growth of 15.7% from the year-ago reported figure.

The consensus mark for revenues is pegged at $3.36 billion, implying growth of 12.3% from the year-ago reported figure.

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

Adobe Inc. Price and EPS Surprise

Adobe Inc. Price and EPS Surprise
Adobe Inc. Price and EPS Surprise

Adobe Inc. price-eps-surprise | Adobe Inc. Quote

Focus on Digital Media Business

The company witnessed strong demand for Adobe’s Digital Media Solutions in the fiscal third quarter. The trend is expected to have continued in the to-be-reported quarter driven by impressive growth in Creative Cloud and Document Cloud businesses.

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 fourth quarter.

Also, Adobe made efforts to provision students at home with Creative Cloud and provide teachers distance learning support, thereby expanding the customer base.

In addition, it witnessed increased demand for professional video products, given 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.

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 led to a surge in demand for digital documents, and increased the use of web-based PDF services as well as the number of documents shared in Acrobat. This is expected to have driven strong adoption of 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.

Management’s Expectations

For fourth-quarter fiscal 2020, Adobe expects year-over-year revenue growth of 18% 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 increase 1%.

Management expects revenues and non-GAAP earnings to be $3.35 billion and $2.64 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 -0.34%. 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 #4 (Sell).

Stocks to Consider

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

Accenture PLC ACN has an Earnings ESP of +1.20% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

KeyCorp KEY has an Earnings ESP of +1.34% and a Zacks Rank #3.

Skyline Corporation SKY has an Earnings ESP of +11.54% and a Zacks Rank #2.

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