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Adobe Systems Incorporated (ADBE) Shrugs Off a Q4 Earnings Beat

Adobe still is racking up growth, but Q4's results weren't enough to give ADBE stock another lift


Adobe Systems Incorporated (NASDAQ:ADBE) said on Thursday that it registered 22% year-over-year growth in revenues for its fiscal fourth quarter. After digesting the number for a few minutes, the stock … well, people still weren’t sure what to do with ADBE stock.

An initial negative reaction immediately after the bell might have represented confusion over GAAP and non-GAAP earnings, or it might have been a reaction to conservative estimates for 2017 growth from the company.

Many analyst estimates use non-GAAP earnings, and estimates were for 86 cents per share on that front. The non-GAAP number came in at 90 cents, but the reported GAAP number was just 80 cents per share. What looked like a miss on expectations turned out to be a beat. Adobe has now beaten earnings estimates for 12 consecutive quarters.

Net income for the quarter came in at $399.613 million, on revenue of $1.608 billion.

While Adobe pays no dividend, the company bought back 3.2 million shares during the quarter for $331 million, supporting the price of ADBE stock.

Still, as after-hours trading went on, some investors saw the beat as a reason to split. The company’s strong performance over the past few years has pushed the price-to-earnings ratio to 53. A few of those who enjoyed the ride decided to take profits.

Adobe Stock: A Bargain Measured in Minutes

The initial negative reaction in ADBE shares caused analysts to call the numbers a good opportunity to buy the stock, which is up 15% over the last year and 275% over the last five years.

As I wrote in previewing the numbers, Adobe is getting a payoff from its past investments in cloud computing, selling more of its graphics and marketing software via subscription instead of through physical media.

All segments of the company showed growth. About two-thirds of revenue comes from digital media tools, and 30% from marketing, with just 3% now coming from the fading print and publishing segment that made Adobe famous in the 1980s.

The Cloud, The Cloud, The Cloud

Cloud creates a virtuous circle for software companies. Revenues come in regularly through subscription, past use of the software almost guarantees renewals, and costs for maintaining files on cloud goes down over time.

Adobe entered the cloud era with a big lead in creative software, and has used its advantages to grow in marketing software. The one revenue problem remains the “document cloud,” essentially a storage service, where revenue is stagnant as customers take advantage of cloud economics.

Still to come is revenue from Sensei — a set of intelligent services announced last month that are being built into its cloud platforms that can help marketing departments avoid mistakes like putting the wrong city background on an ad, using images for which the department does not have rights or edit facial expressions without switching models.

Sensei also will combine imaging and marketing functions so that clients can tweak campaigns on-the-fly, changing tagged features so a night-sky will appear in an ad seen at night, while a day-sky will appear in one seen during the day.

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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