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Adobe- Changing the Digital World

Adobe Systems (ADBE) is a software company that’s changing the world through digital experiences, Crista Huff, growth stock expert and editor of Cabot Undervalued Stocks Advisor

Adobe reported third-quarter EPS of $2.05 last week (November year end), when the market expected $1.97, boosted by rising operating margins. Revenue came in a fraction above estimates at $2.83 billion.

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Adobe’s Digital Media segment, which represents 70% of the company’s revenues and 90% of profits, delivered strong revenue growth in the quarter.

Digital Media includes Creative and Document Cloud and Photoshop. Third-quarter net new Annual Recurring Revenue (ARR) and fourth-quarter guidance for ARR were each higher than analysts’ expectations.

The Experience Cloud segment delivered 23% year-over-year revenue growth. Experience Cloud includes Magento, Marketo, and Experience Platform, which will launch in the near future. Magento delivered a 40% increase in bookings vs. a year ago.

The market was disappointed that Marketo — a recently-acquired marketing software business—is delivering slower-than-expected bookings, bringing fourth quarter revenue guidance down a notch to $2.97 billion. A new product cycle in the fourth quarter will likely ramp up customer demand.

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Adobe is a large-cap, high-P/E aggressive growth stock. Full-year 2019 earnings estimates rose a bit after analysts assessed the quarterly results.

Analysts now expect EPS to increase by 42.5% in 2019 and 23.9% in 2020. Five investment firms lowered their price targets on ADBE to a range of 310-322, although not without bullish commentary. This is a great stock for risk-tolerant growth investors and buy-and-hold equity portfolios.

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