With fiscal third quarter 2012 earnings to be reported on
September 19, 2012, we see no change in analyst estimates for
Adobe Systems Inc.
) to date.
Adobe's second quarter earnings of 49 cents surpassed the Zacks
Consensus Estimate by a penny on the back of stronger revenue
across segments, with particular strength in Creative Suite and
Digital Marketing Suite businesses.
Adobe's total revenue was $1.124 billion, up 7.6% sequentially
and 9.9% year over year. The successful launch of Creative Cloud
and Creative Suite 6 (CS6), strong Acrobat revenue and
better-than-expected growth in Digital Marketing Suite business led
to the strength in revenue.
Products generated 77.5% of revenue, up 7.7% sequentially while
Subscription revenue comprised 14.2% of revenue, up 9.2%
sequentially. Services & Support brought in the balance,
increasing 3.8% sequentially.
Gross margin was 88.4%, down 90 bps from 89.3% in the comparable
year-ago quarter due to unfavorable mix. However, operating margin
was slightly up from 27.0% in the year-ago period due to
lower-than-expected expenses in the quarter.
For the third quarter, Adobe expects revenue in a range of
$1.075 billion to $1.125 billion.
GAAP EPS is expected to be 38 cents to 43 cents, including
stock-based compensation of 16 cents, intangibles amortization
charges of 6 cents and income tax adjustment of 4 cents. Excluding
all of these, non-GAAP EPS is expected to be 56-61 cents.
Currently, the Zacks Consensus Estimate for the upcoming quarter is
pegged at 47 cents.
For the full year, Adobe expects GAAP earnings of $1.69 to $1.76
and non-GAAP earnings of $2.40 to $2.46.
(Detailed earnings results can be viewed in the blog titled:
Adobe Beats on Solid Revenue
Agreement of Analysts
None of the 9 estimates for the third quarter were revised in
the last 30 days. Even for fiscal 2012, there was no revision in
the last 30 days.
Most of the analysts believe that with the strong response to
CS6 and Creative Cloud, earnings per share will likely come in line
with the Street consensus estimate of 47 cents. However, they
believe that negative foreign currency movement will act as a
The analysts believe that CS6 had a strong start, driven by an
enhanced feature set, pent-up demand, newer cloud features and
subscription pricing. The existing customers also upgraded to CS6
due to expanded mobile device support, photoshop enhancements, and
stronger HTML5 capabilities. The analysts also believe that the
inclusion of HTML5 development tools into the Creative Suite has
added critical functionality, which is driving user upgrades.
However, the analysts believe that the key to CS6 success will
be the ability of Subscription pricing to attract brand new
customers. Also, they do not expect strong operating margin
expansion due to the company's huge growth investments and
Magnitude of Estimate Revisions
In the last 30 days, there was no change in the Zacks Consensus
Estimates for the third quarter and fiscal year 2012.
Over the 90-day period, the Zacks Consensus Estimate decreased
by 2 cents to 47 cents for the third quarter but remained unchanged
for fiscal 2012.
We believe Adobe will come out with decent third quarter results
owing to increasing revenue visibility, solid CS6 adoption, cost
cutting efforts, improved execution and an expanding customer base.
We believe the company's dominance in the Creative category and the
integration of Creative products with digital marketing apps will
provide a competitive edge.
Additionally, Adobe's acquisition of Efficient Frontier will
enhance its Digital Marketing suite by adding optimization
capabilities for search and display advertising while accelerating
its entry into social advertising.
However, a weak demand environment in Europeand strong
) in tablet space remain a matter of concern.
Adobe shares currently have a Zacks #3 Rank, implying a
short-term Hold recommendation.
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