Despite Adobe Systems Incorporated (NASDAQ:ADBE) stock trading down Wednesday amid disappointing subscription growth and lowered expectations, Adobe stock is healthy and set for large growth in cloud technology over the next decade.
ADBE on Tuesday delivered less-than-desired subscriber growth figures (517,000 versus an expected 573,000) and forecast earnings that were below analysts’ expectations. That sent stock down 3% Wednesday, earning it the dubious distinction of being one of InvestorPlace’s three worst stocks of the day.
But it’s not all bad news. ADBE earnings beat estimates, as revenue came in at $1.11 billion and 44 cents per share, compared to analysts’ expectations of $1.09 billion and 39 cents per share. Revenue compared to the previous year increased 11%, and EPS improved from 30 cents for the same quarter a year ago.
Now analysts are calling for $2.08 EPS for the current fiscal year and Citigroup analysts are giving Adobe stock a price target of $92. It currently trades at $76.
Let’s remember, Adobe has continuously surprised on earnings for at least the last four quarters, from nearly 8% to well over 20% — so counting ADBE out right now is foolish. And this this week, the company unveiled its Document Cloud service in hopes of grabbing a piece of the growing cloud technology pie.
ADBE: Growth Opportunities in the Cloud
While Adobe stock trades down in lieu of disappointing subscriber growth, Adobe actually saw revenue increase in its subscription service — $713.4 million over last year’s $423.5 million. The fact ADBE shows strength where other companies are reporting weakness, thanks to a stronger dollar, is a good sign indeed.
The true test for Adobe stock, however, is how well it can expect to perform in the future. That said, Adobe is making the right decisions with its focus on cornering the professional market for cloud services.
Adobe Systems believes it has a prime opportunity for growth in cloud technology. ADBE released a report this week, which it said was a scientific survey of more than 5,000 office professionals in the U.S., the U.K., Germany, France and Australia. Among the findings:
- 69% of U.S. professionals (61% globally) see less paperwork as a reason to change jobs, while 76% rely on paper documents at work.
- 49% of U.S. professionals (43% globally) have lost important documents, the overwhelming cause from hard drive failure.
- More than half of the respondents expect their work and personal documents to be accessed from anywhere, but only 6% actually use the cloud.
That last number is important, as it details the level of fragmentation in current cloud offerings. For a company to take advantage of this professional need, it must give businesses an offer they cannot refuse (minus using any Mafioso influence).
ADBE: Document Cloud
Adobe Systems is positioned to benefit tremendously from the frustrated professionals over locally stored digital files and exhausting paperwork.
Research in cloud technology, notably by Gartner, suggests cloud computing will be where the information technology sector pours most of its cash by 2017.
What’s more, a McKinsey & Company report indicates that the economic impact of cloud technology may potentially surpass $6 trillion annually by 2025, while offering several business advantages:
“One of the chief advantages of the cloud model is elasticity — users can expand or shrink capacity as needed. Cloud technology can be implemented as a third-party service or by companies that pool their computing resources on their own private clouds. By centralizing computers, storage, and applications on the cloud, companies raise IT productivity by increasing utilization (which is currently limited by the fact that many computers are used at peak capacity for only 30 to 40 days a year) and reducing the number of employees needed to maintain systems and develop software. With public clouds, companies can move to an “asset-light” model by turning a large capital investment (IT infrastructure) into an operating cost. Cloud setups are also more reliable (since they are capable of shifting processing from one machine to another if one becomes overloaded or fails), eliminating productivity-draining outages.”
Adobe is in the position to take the lead here with Acrobat Document Cloud, the latest of its professional cloud services that includes Adobe Creative Cloud and Marketing Cloud.
ADBE Document Cloud functions using a re-branded Acrobat “DC” that integrates with Adobe’s EchoSign technology to store, track and manage PDF docs in one comprehensive cloud solution. Like the other ADBE cloud services, Document Cloud works with third party services, such as Microsoft Corporation (NASDAQ:MSFT) SharePoint, and can function within third-party products.
ADBE stands to ramp up subscriber sales to astronomical levels, as in order to take advantage of ADBE’s Document Cloud, you must buy the subscription.
There are currently 34 million registered Acrobat users, 100 million processed e-sign agreements on EchoSign and more than 50 billion PDFs opened through Acrobat Reader and similar Adobe products. Acrobat is standard, from CEO to receptionists, and now even those who purchased it for a one-time price will have to buy the subscription to take advantage of its cloud capabilities.
Thanks to Document Cloud, ADBE is well-positioned to be a leader in the cloud, and that should help boost ADBE stock.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
