Adobe Rises to Record on Upbeat Sales Forecast Driven by Cloud

Updated on
  • Second-quarter revenue will rise more than analysts projected
  • Digital-media software business gains are accelerating

Adobe Systems Inc. soared to a record Friday after it forecast sales in the current quarter that topped some analysts’ estimates, bolstering its position as a leader in the cloud and adding to a string of upbeat reports.

The company, which sells digital media software and systems, said revenue will be about $1.73 billion in the fiscal second quarter, with adjusted profit at 94 cents a share. That compares with average analyst projections of $1.71 billion in sales and 91 cents in profit, according to data compiled by Bloomberg.

Adobe was one of the first big software vendors to switch its sales to subscriptions from one-time licenses of products. Chief Executive Officer Shantanu Narayen is doubling down on that focus and the company, which also helps businesses with digital designs and online marketing, has beat sales estimates for three quarters in a row. That helped push the stock to a record intraday high of $130.30 in New York Friday. It’s 6.5 percent gain was also the most in almost six months.

"They continue to execute flawlessly, or near-flawlessly," said said Josh Olson, an analyst at Edward Jones. "This is just a very well-run company right now." He has a hold rating on the stock.

Ryan Macdonald, an analyst at Wunderlich Securities, raised his price target on the shares to $145 from $115 and his recommendation to buy from hold. Other analysts also raised their targets. Adobe has 21 buy recommendations, 9 holds and zero sells.

First-quarter revenue climbed 22 percent to $1.68 billion, Adobe said in a statement after the close of regular trading Thursday. Analysts had estimated $1.65 billion. Profit excluding certain items was 94 cents a share in the period, which ended March 3. Analysts on average projected 87 cents. Net income rose 57 percent to $398.4 million, and operating expenses rose at about half the rate of sales, climbing 11 percent to $975.3 million.

"Digital transformation has created a tailwind for Adobe among a diverse spectrum of customers in a broad number of industries -- from students to designers to the public sector and the world’s largest brands," Narayen said in prepared remarks for a call with analysts that were posted on the company’s website.

Digital Media

For the current quarter, Adobe expects sales in the digital-media part of the business, including its popular Photoshop program, to rise about 24 percent. That is slightly above the first-quarter pace of 22 percent for the company’s biggest unit.

Revenue in the marketing division will grow 26 percent, San Jose, California-based Adobe said. That unit is benefiting from the company’s purchase of video-advertising platform TubeMogul, a deal that was completed at the end of calendar 2016 for about $500 million.

Already, the acquisition is showing results. TubeMogul’s contribution to Adobe’s revenue exceeded expectations during the quarter, according to Chief Financial Officer Mark Garrett.

"It’s going great," Garrett said in an interview. "Video is a very important piece of what brands, advertisers want to do."