Patrick Industries (PATK) Enters Oversold Territory
It has been about a month since the last earnings report for Adobe Systems Incorporated ADBE. Shares have added about 3.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is ADBE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Adobe (ADBE) Earnings, Revenues Beat Estimates in Q1
Adobe Systems Incorporated reported first-quarter fiscal 2018 non-GAAP earnings of $1.55 per share, which came ahead of the Zacks Consensus Estimate of $1.43. The figure increased 23% sequentially and 64.9% on a year-over-year basis.
Adjusted revenues increased 3.4% sequentially and 23.8% year over year to $2.08 billion beating the Zacks Consensus Estimate of $2.04 billion.
The year-over-year growth was driven by strong demand for the company’s innovative solutions and products, strength across geographies and growing subscriptions for its cloud application.
Following the earnings results, its share price gained 3.76% in after-hours trading. Shares have returned 78.3% over a year, outperforming the industry’s rally of 35.7%.
Top Line in Detail
Adobe reports revenues in three categories — Subscription, product and services & support.
Subscription revenues came in $1.79 billion (86% of total revenues), up 29.7% on a year-over-year basis and 5.9% sequentially.
Product revenues came in $171.6 million (8.2% of revenues), decreased 6.3% year over year and 10.9% sequentially.
Services & support revenues came in $113.9 million (5.5% of revenues), which also dipped 0.4% year over year and 3.2% sequentially.
The company operates in two reportable segments — Digital Media and Digital Experience.
Digital Media — This segment generated revenues of $1.46 billion (70.1% of total revenues), which increased 28.1% on a year-over-year basis and 5% sequentially. The segment comprises Creative Cloud and Document Cloud. The company witnessed 34.6% growth in annualized recurring revenue (ARR) within this segment. This was attributed to the transition made on Adobe.com from using US dollar to local currency in certain markets.
Creative Cloud (CC) generated $1.23 billion of revenues, reflecting 30.6% year-over-year growth. Additionally, Creative ARR increased by $303 million to $5.07 billion. The year-over-year growth was driven by robust performance of Adobe Stock and Stock and collaboration services.
Moreover, improving average revenue per user (ARPU) across the key offerings and increasing net new subscriptions drove the top line of CC. Additionally, the company entered into various creative agreements in the reported quarter and most of them included service offering which drove the creative ARR.
Document Cloud (DC) generated $231 million of revenues, up 18% from the year-ago quarter. Moreover, Document ARR came in $647 million. This was driven by strong performance of Adobe Sign and growing adoption of Acrobat. The company also experienced a robust growth in Acrobat units on a year-over-year basis.
Moreover, the company experienced robust bookings across various platforms such as — Adobe Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud.
Digital Experience — This segment generated revenues of $554 million (26.6% of revenues), which increased 16% on a year-over-year basis and 0.7% sequentially. The segment includes Adobe Experience Cloud. The company witnessed 22% growth in subscription revenues within the segment. Further, robust Analytics Cloud, Marketing Cloud and Advertising Cloud offerings coupled with emerging solutions such as Audience Manager, Campaign, Target and Media Optimizer solutions drove the top line.
Gross margin was 87.5%, expanding 100 basis points (bps) sequentially and 180 bps on a year-over-year basis. Gross margin expansion was attributed to strong subscription revenues.
Adjusted operating margin was 41.9%, reflecting an expansion of 580 bps year over year. This was attributed to almost flat year-over-year growth in research & development, general & administrative and sales & marketing expenses as a percentage of total revenues.
Adobe incurred operating expenses of $1.17 billion, reflecting an increase of 14.5% year over year.
Balance Sheet & Cash Flow
As of Mar 2, 2018, cash and investments balance of $6.14 billion, up from $5.82 billion as of Dec 1, 2017.
Trade receivables were $1.06 billion, down from $1.2 billion in the previous quarter. Deferred revenues were $2.6 billion, increased from the quarter-ago figure of $2.4 billion.
In the reported quarter, cash generated from operations was $989.6 million, up from $833.2 million in the previous quarter.
During the quarter, Adobe repurchased approximately 1.6 million worth $301 million.
For second-quarter fiscal 2018, the company projects total revenues of $2.15 billion.
Further, Adobe expects year-over-year growth in revenues of 25% and 15% from Digital Media and Digital Experience segment, respectively.
Additionally, the company expects $330 million of net new Digital Media ARR.
Based on a share count of 499 million, management expects GAAP earnings and non-GAAP earnings of $1.16 and $1.53 per share, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been ten revisions higher for the current quarter.
Adobe Systems Incorporated Price and Consensus
Adobe Systems Incorporated Price and Consensus | Adobe Systems Incorporated Quote
At this time, ADBE has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, ADBE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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