Adobe Systems Is a Screaming Buy

Adobe Systems (ADBE) announced first quarter ended March 31, 2016 total revenue of $1.38 billion, up 24 percent year-over-year from $1.11 billion during the same period last year. Going forward, the company estimates second quarter of 2016 total revenue to be in the $1.365 billion to $1.415 billion range.

Adobe declared first quarter of 2016 net income of $254.3 million or $0.50 per diluted share, up 200 percent year-over-year from $84.9 million or $0.17 per diluted share in first quarter of 2015. Further, Adobe estimates second quarter of 2016 non-GAAP earnings per share to be in the range of $0.64 to $0.70.

The globally-diversified software company reported continued year-over-year improvements in both its top and bottom lines primarily driven by a robust adoption of cloud products during the period.

Diversification helps

Adobe has extremely well-diversified revenue sources by geography with Americas, EMEA and Asia contributing 58%, 28% and 14% respectively to total revenue during the first quarter of 2016.
However, total quarterly revenue declined by $7.6 million sequentially and fell by $68.6 million year-over-year after considering the hedging impacts.

The software major registered 33 percent year-over-year expansion in digital media segment revenue to a solid $932 million along with creative revenue expanding 44 percent on year-over-year basis to a notable $733 million.

The significant customer traction for Adobe’s innovative software solutions coupled with attractive geographical top line diversity is expected to drive sustainable long-term company growth while delivering impressive shareholder returns.

The continued solid adoption of creative cloud has notably enhanced Adobe’s Annualized Recurring Revenue (“ARR”) for digital media to $3.13 billion by the quarter-end, up 9% or grew by $249 million sequentially from $2.88 billion in last quarter ended November 27, 2015 and mainly due to growths in document cloud subscriptions and the paid creative cloud count.

The marketing cloud segment of Adobe recorded robust bookings expansion and a solid 21 percent year-over-year revenue growth to $377 million. Deferred revenue increased to 1.61 billion for the quarter.

Adobe’s year-over-year non-GAAP income from operations and net income both expanded 48 percent with $498 million of operating cash flows.

The sustainable increase in customer demand for Adobe’s new set of software solutions in addition to unique cost-optimization initiatives being undertaken by the company is believed to deliver continued long-term company profitability while offering timely and attractive shareholder returns.

Importantly, Adobe recently bought back nearly 1.5 million shares in the quarter and returned a significant $133 million of net cash to the key stakeholders which is in line with its continued commitment to deliver attractive shareholder returns.

Adobe is strategically transitioning from the outdated licensed software to the latest web-based subscriptions to enhance user experience while delivering significantly likely recurring revenue streams.

Creative Cloud including, Illustrator, Photoshop and Indexing is believed to be the largest cloud businesses of Adobe in addition to two other businesses of Document Cloud and Marketing Cloud.

The software company is quickly and closely following the latest market trend by uniquely shifting to advanced web-based subscriptions from the traditional licensed software along with a solid dominance in cloud-enabled technology which is estimated to increasingly attract new customers towards the company’s innovative software solutions while allowing investors to hugely invest into the stock and harness sustainable long-term returns.


Overall, the investors are advised to “Buy” equity in Adobe Systems Incorporated considering the company’s significant near-term and long-term growth prospects being supported by a strong financial position with notable total cash of $4.10 billion and smaller total debt position of $1.92 billion only, encouraging the company to make future growth investments while delivering attractive shareholder returns. The profit margin of 15.76% seems attractive as well. The PEG ratio of 1.23 signifies healthy company growth and somewhat better than the industry’s growth average of 1.07 only.
Published on Jun 15, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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