Adobe soars: What Wall Street is saying

The software compay's stock is trading higher after better-than-expected earnings.

By TheStreet Staff Jun 19, 2013 12:05PM

thestreet logoBy Chris Ciaccia


Adobe Systems (ADBE) posted on Tuesday exceptionally strong second-quarter earnings, led by the strength in its transition to becoming a cloud computing company (TheStreet).


Adobe, which now offers its Creative suite of products differently than it previously had, announced that its Creative Cloud subscriptions hit 700,000 customers. The company also announced its Adobe Marketing Cloud bookings grew 25% year over year, resulting in the company beating earnings expectations. Adobe earned 36 cents a share on a non-GAAP basis, and generated $1.01 billion in revenue. Analysts were expecting the company to earn 33 cents a share on $1.01 billion in revenue.

Wall Street analysts were largely positive on the report, with several raising their price targets on Adobe.


Here's what a few of them had to say regarding the earnings report:


UBS analyst Brent Thill ("buy," $50 price target):


"ADBE added 221K net new Creative Cloud subs, beating our 170K est. Metric is up 44% q/q vs. 16% in Q1 and 40% in 4Q12, signalling strong adoption. This makes the 1.25M cumulative subs goal for FY13 look even more conservative as it implies only mid-teens seq. growth in net new adds for Q3 & Q4. The biz model is transitioning decisively to a more visible one: recurring revs 35% of total vs. 26% in Q4; momentum building for Team and Enterprise subs; term license option for content mgmt pdt is a welcome move; early renewal trends better than expected."


Arrow Up (© Nicholas Monu/iStock Exclusive/Getty Images)Lazard analyst Brett Fodero ("neutral"):


"2Q subscribers came in ahead of expectations at 220k, and FY13 subscriber goals of ~1.25M were reiterated. Continued promotional activity to drive CC subscriber adoption is evident in steady ASPs, and the NT ramp in CC subscribers appears sustainable. Digital marketing remains mixed with a path returning to ~20% growth not immediately evident. We continue to see LT margin expansion as capped in the low 30's as gross margins compress and further investments in enterprise distribution and product are realized."


Credit Suisse analyst Phillip Winslow ("neutral," $40 PT):


"We maintain our Neutral rating on Adobe's stock during the transition to a subscription-based licensing model for Creative Suite and as Adobe invests in digital marketing opportunities. Determining the underlying growth of the Creative installed base is challenging during the transition. Furthermore, with a consolidating marketing segment with multiple recent acquisitions by large software vendors in lead management/marketing automation, campaign management, and commerce platforms, we believe that the roadmap for Adobe to extend its Marketing Cloud beyond its strong niche positioning has become more uncertain."


Jefferies analyst Ross MacMillan ("hold," $45 PT):


"Following our mixed survey results from 5/28, ADBE positively surprised on Creative Cloud (CC) subscribers, posting 221K net adds v us at 200K and Street at ~185K for F2Q. The 1.25M CC end-year sub target for FY13 seems more achievable/ beatable and ADBE is ramping more promotions (e.g. $20/ month for CS6 users) to drive conversions. We see the merits of the biz model shift, but are loathe to chase off this print."


Shares of Adobe were higher in early morning trading, up 6.54% to $46.20.


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