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Adobe (ADBE) to Report Q3 Earnings: Should Investors Hop on the Cloud Computing Train?

Christopher Vargas

Cloud software giant Adobe ADBE is set to report its third quarter results after the closing bell on Tuesday. The company’s shares have risen 24.4% year-to-date, outpacing the broader computer software market’s gain of 19.4%. Strong demand for Adobe’s creative products has helped drive growth in 2019 thus far. Its continued efforts to establish their presence in the cloud related market has also aided the company’s performance. Let’s take a look at what might be in store for Adobe in Q3 and beyond.

Overview and Q2 Recap

Adobe is based out of San Jose, California and is one of the largest software companies in the world. Adobe operates in three main segments: Digital Media, Digital Experience, and Print/Publishing. The Digital Media segment enables small businesses and enterprises to create compelling content and deliver it across multiple media platforms such as smartphones, tablets, and other devices. The Digital Experience segment provides insights into the performance of digital marketing initiatives and allows organizations to make informed business decisions. Its Publishing segment supports business publishing through a special printing and imaging page description language.

In Q2, the company reported its 17th consecutive quarter of record revenue and strong earnings that showed no signs of slowing down. The company’s earnings increased 10% in Q2 to $1.83 per share, surpassing our earnings estimate by 2.81%. Adobe reported a top line surge of 25% to $2.74 billion, beating our sales estimate by 1.64% in Q2.

The company’s sales growth was driven by the strong demand for the Adobe Document Cloud and Adobe Experience Cloud products. Adobe Document Cloud reached a new record with a reported $296 million in sales, up 22% from the year ago quarter. Its Digital Media segment soared 22% to $1.89 billion while the Digital Experience segment climbed 34% to a new record of $784 million.

Q3 and Beyond Outlook

Our consensus estimates call for Adobe to see a bottom-line rally of 11.82% to $1.59 and for sales to climb 22.66% to $2.81 billion. Key Company Metric Estimates anticipate Document Cloud to continue its growth with a projected $286 million in revenue. Subscription revenue is projected to spike 25.8% to $2.54 billion and the company’s product sales is forecasted to pop 4.82% to $156 million. Adobe’s services and support is predicted to generate $136.8 million for a year over year gain of 13.56%.

Looking ahead to Adobe’s full fiscal year, estimates call for earnings to come in at $6.30 per share and for sales to hit $11.17 billion. Adobe has surpassed our earnings estimates three out of the past four quarters with an average EPS surprise of 2.83%.

Adobe is targeting a new segment of users to drive future growth. Adobe Spark is one of the products CEO Shantanu Narayen highlighted as a product that can propel the company in the future. Narayen said that the app helps turn ideas into compelling stories with ease and is “rapidly gaining popularity among creators from the classroom to the boardroom.” Adobe looks poised to continue its remarkable run, currently sitting at a Zacks Rank #3 (Hold).

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