Adobe Systems Incorporated (ADBE) Posts Blowout Earnings, Confirms Bull Case

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Remember the days when Wall Street was worried about how smoothly Adobe Systems Incorporated (NASDAQ:ADBE) would be able to shift from a proprietary model to cloud-based delivery? Me neither.

Adobe Systems Incorporated (ADBE) Posts Blowout Earnings, Confirms Bull CaseAdobe stock jumped in the after hours Tuesday after reporting a record quarter thanks in part to a 41% jump in subscription sales.

ADBE stock moved up some 7% higher for the year prior to yesterday’s results, but added another 7% since. In a quarter when companies are struggling to post earnings growth, much less organic growth, Adobe knocked the socks off of Wall Street.

For starters, it posted record quarterly sales of $1.46 billion, translating to 20% year-over-year growth. That trickled down to the bottom line to the tune of non-GAAP earnings of 75 cents per share, three pennies better than analysts had hoped.

For the cherry on top, Adobe Marketing Cloud revenue, cash flow from operations and deferred revenue all set records.

Where Adobe Stock Goes From Here

Adobe is the clear leader in its niche, and it’s embraced the transition to the cloud. That’s paying off big-time. While it took some time for the sales cycle to adjust to a cloud-based delivery model of Adobe software, things are smooth and expanding now. There’s a strong foundation in place, as 83% of revenue in the most recent quarter came from recurring sources, an all-time high. And substantial growth is expected to continue.

We are expecting another record quarter in Q4, and the leverage in our operating model is reflected in our increase to earnings targets for the year,” CEO Shantanu Narayen said. In fact, Adobe’s estimates for the current quarter also topped Wall Street’s expectations. The company’s non-GAAP earnings range was 83 to 89 cents, while analysts expected 78 cents. Meanwhile, sales should expand around 20% yet again.

That’s largely thanks to Adobe’s core business and strong brand, but it’s planning to innovate its popular photo-editing software Lightroom to feature some sort of e-commerce aspect. Adobe just introduced a public beta of Adobe Stock Contributor, which lets users buy and sell photos within the app. If this launch goes well, it could continue driving growth.

Whether we’re looking forward or backward, there’s a lot to like with regards to ADBE stock right now. The business is established, the brand is household, the momentum is strong and the growth rates are high.

Adobe is an indispensable company for a wide range of consumers and enterprises, in turn making it an indispensable investment for countless stock pickers. The most recent quarter just reminded us how much there is to like about this tech transition story.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane TraderAbsolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/09/adobe-stock-adbe-systems-earnings/.

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