The Q2 2014 earnings report for software stock Adobe Systems Incorporated (NASDAQ: ADBE), a potential peer or performance benchmark of other software stocks or players like Microsoft Corporation (NASDAQ: MSFT), Autodesk, Inc (NASDAQ: ADSK) and iShares S&P GSTI Software Index Fund (NYSEARCA: IGV), is scheduled for after the market closes on Tuesday. Aside from the Adobe Systems Incorporated earnings report, it should be said that Microsoft Corporation reported Q3 2014 earnings on April 24th (FYQ3 revenues and EPS beat; cloud revenue doubled; Q4 view was light) and Autodesk, Inc reported Q1 2015 earnings on May 15th (Q1 revenues beat and earnings met estimates). The last time Adobe Systems reported earnings, it beat expectations thanks to strong adoption of Creative Cloud and Adobe Marketing Cloud as the company has been shifting away from from physical products to cloud-based software that users subscribe to.
What Should You Watch Out for With the Adobe Systems Incorporated Earnings Report?First, here is a quick recap of Adobe Systems Incorporated's recent earnings history from Yahoo! Finance:
| EPS Est | 0.34 | 0.34 | 0.32 | 0.25 |
| EPS Actual | 0.36 | 0.32 | 0.32 | 0.30 |
| Difference | 0.02 | -0.02 | 0.00 | 0.05 |
| Surprise % | 5.90% | -5.90% | 0.00% | 20.00% |
Back in March, Adobe Systems Incorporated reported that revenue fell about 1% to $1 billion while net income fell from $65.1 million to $47 million – beating analyst expectations. However, Adobe Systems Incorporated exited Q1 with 1.844M paid Creative Cloud subscriptions, an increase of 405k when compared to the number of subscriptions as of the end of Q4 fiscal year 2013 while Adobe Marketing Cloud quarterly revenue was $267 million for a 24% year-over-year growth. The CEO commented:
"Adobe's Q1 momentum was driven by strong adoption of Creative Cloud and Adobe Marketing Cloud. We have an amazing pipeline of innovation that we will deliver in the coming months, as well as plans to differentiate ourselves by further integrating our Cloud businesses."
The EVP/CFO also commented:
"We achieved a significant milestone with our transition to the Cloud in our first quarter with more than half of Adobe's total revenue coming from recurring sources such as Creative Cloud subscriptions and Adobe Marketing Cloud adoption. In our Creative business, reported revenue from subscriptions exceeded revenue from legacy perpetual licenses for the first time."
This time around and according to the Yahoo! Finance analyst estimates page, the consensus expects revenue of $1.03B and EPS of $0.30 - slightly higher than the consensus EPS of $0.27 expected about ninety days ago.
On the news front and back in mid May, Adobe Systems Incorporated experienced an outage that disrupted the Web-based, subscription Creative Cloud service to top-selling software programs (including Photoshop, Illustrator and Flash) for about a day. Customers were able to apply to compensation for the outage (Creative Cloud plans range from $30 to $75 per month).
Prior to the outages, Pacific Crest reported that after speaking with Adobe Systems Incorporated resellers, demand is accelerating for the company's Creative Cloud product. Pacific Crest kept a $75 price target and Outperform rating on the stock. In addition and in early April, Cowen said the recent pullback in Adobe Systems Incorporated should be used to aggressively buy shares as they believe the company has one of the best secular growth stories in their universe. They also gave shares an Outperform rating with a $80 price target.
What do the Adobe Systems Incorporated Charts Say?The latest technical chart for Adobe Systems Incorporated show a mix of trend lines:
A look at the performance chart for Adobe Systems Incorporated, Microsoft Corporation, Autodesk, Inc and iShares S&P GSTI Software Index Fund show a divergence after the recession and then a mirror performance. However, Microsoft Corporation has been more of an underperformer:
Nevertheless, Microsoft Corporation along Autodesk, Inc still have a bullish technical chart while iShares S&P GSTI Software Index Fund has a mix of trend lines:
It will be interesting to see what impact the cloud outage had on Adobe Systems Incorporated's financials along with subscription increases. However and for the longer term, Adobe Systems Incorporated does look like a safe cloud computing bet.
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