RealMoney Silver - More Upside Likely for ADBE

More Upside Likely for ADBE
By Jay Somaney
RealMoney.com Contributor
12/18/2007 11:32 AM EST

Updated from 11:11 a.m. EST on Dec. 17.

Adobe Systems (ADBE) reported numbers that were better than I expected and also provided guidance slightly higher than the Street expected. As a result, the stock is popping rather nicely, up just under 4% as I write this.

The company reported fourth-quarter earnings of 49 cents per share vs. consensus of 48 cents per share on revenue of $911.2 million vs. consensus of $887 million.

Adobe is guiding first-quarter 2008 revenue to a range of $855 million to $885 million vs. consensus of $835 million. EPS guidance is 44 cents to 46 cents vs. Street expectations of 42 cents.

Furthermore, the company also announced a stock buyback of 30 million shares, or about 5%+ of current shares outstanding.

Creative Solutions contributed 63% to overall revenue and was up 57% year over year. The Knowledge Worker segment was also up 57% year over year.

Overall revenue was up 34% year over year. Americans accounted for 47% of revenue, while EMEA was 35% and Asia was 18%.

The backlog was 7% of revenue, the highest level in almost two years.

Acrobat 9 will now begin shipping in June versus expectations of May-June.

I think ADBE will easily surpass its 13% guided revenue growth rate for 2008, and the company is seeing strong business momentum. Given the muted but positive response this morning, I think there is room for much upside if the markets can get their act together.

ADBE Preview: Expectations Are High

Adobe Systems (ADBE) is set to report numbers for its quarter ended Nov. 30 this afternoon after the close of regular market trading.

The Street expects earnings of 48 cents per share on revenue of $887.33 million for the quarter. For its first quarter 2008 (February quarter), the sell-siders are at 42 cents per share on revenue of $835 million. For fiscal 2008 (ending Nov. 30, 2008), the Street expects earnings of $1.82 per share on revenue of $3.55 billion.

Here is what to watch for:

The company said last month that revenue would come in at the high end of its guided range of $860 million to $890 million, so I would be looking for a number higher than $890 million. Any number lower than $890 million will more than likely be viewed as a disappointment.

How is Creative Suite 3, which is the company's revenue driver, doing?

How are the corporate, educations and government verticals doing individually?

How are competitive issues shaping up, especially at the lower end from the likes of Nuance (NUAN) ?

Comments on future product launches, like LiveCycle and Mobile, as well as CEO changes will be key.

What has delayed the FlashCast launch with Verizon?

With November quarter upside already in the numbers at the moment, the company will have to raise guidance going forward for the stock to see continued upside momentum. Can the company deliver?

I think expectations are rather high for Adobe, which keeps me away from a trade. I think that the company beats estimates but first-quarter guidance could be conservative given the current economic backdrop. Despite that, the shares are almost 16% off the highs hit in early November, so, as long as the company does not lower guidance, the shares will more than likely pop this afternoon.

We shall see.