Adobe Systems: a Strong Buy

Adobe Systems (ADBE) announced third quarter ended June 30, 2016 total revenue of $1.46 billion, up 20 percent year-over-year from $1.22 billion during the same period last year. Going forward, the company estimates fourth quarter of 2016 revenue to be in the range of $1.55 billion to $1.6 billion.

Impressive growth

Adobe declared third quarter of 2016 non-GAAP net income of $376.5 million or $0.75 per diluted share, up 5 percent sequentially from $357.4 million or $0.71 per diluted share in second quarter of 2016 and an increase of 37 percent year-over-year from $275.4 million or $0.54 per diluted share in third quarter of 2015.
Moving ahead, the company estimates fourth quarter of 2016 non-GAAP earnings per share in the range of $0.83 to $0.89.

The global software major reported continued year-over-year growth in both its top and bottom line primarily driven by robust operating performance across the company’s three key cloud offerings coupled with impressive cost-optimization efforts being implemented all through its operations.

Adobe illustrated robust ARR growth for the digital media segment with solid top line contribution from Adobe Creative and Adobe Marketing Cloud growth segments in addition to strong bottom line growth with impressive deferred revenue and operating cash flows.
Adobe Systems: a Strong Buy
Image by Clker-Free-Vector-Images / Pixabay
Also, the company achieved a record 83% of third quarter revenue contribution from the recurring sources.

The globally diversified software company delivered a solid $803 million of creative revenue along with the creative ARR of $3.26 billion in third quarter of 2016 that was primarily driven by robust demand for the company’s Creative cloud techniques all through its offerings and market access routes. In addition, Adobe witnessed a solid Creative Cloud Average Revenue per User (ARPU) and ARR expansion all through the company’s attractive commercial offerings.

Adobe seems to be an industry-leader in Cloud Services by generating solid top line growth from each of its attractive Cloud offering which is achieved from each of the company’s key Cloud users and delivering sustainable long-term company growth while offering attractive shareholder returns in form of dividends and timely share repurchases.

Growing in a diversified manner

Adobe has delivered extremely well-diversified revenue stream geographically with Americas, EMEA and Asia delivering 58%, 27% and 15% of total revenue respectively. There was also a total sequential quarterly growth in revenue of about $12 million while considering the hedging impact. However, total revenue declined year-over-year by nearly $19.4 million while considering the strategic hedging impact.

The software major illustrated impressive top line growth for its marketing cloud segment with a solid revenue of about $404 million, depicting 10 percent year-over-year expansion and over 25% year-over-year top line expansion witnessed for subscription growth segment. Going forward, Adobe has developed a robust fourth quarter of 2016 project pipeline with attractive bookings and marketing cloud retention program. Mobile data operations expanded to about 52% of overall Adobe Analytics operations during the third quarter of 2016.

An extensively well-distributed top line growth of Adobe geographically suggests the underlying strength of company operations with a solid customer base developed globally that is further, believed to deliver sustainable long-term company growth while offering attractive shareholder returns in form of dividends and strategic share repurchases.


Overall, the investors are advised to “Buy” equity in Adobe Systems Incorporated considering the company’s significant near-term and longer term growth prospects with a solid focus towards delivering sustainable shareholder returns. Adobe has strong financial position with notable total cash of $4.32 billion against 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 16.88% also seems impressive. Further, the PEG ratio of 1.22 signifies industry-leading company growth.
Published on Sep 27, 2016
By Subhen Mittra

Copyrighted 2020. Content published with author's permission.

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