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Why Adobe (ADBE) Is Gaining After-Hours Tuesday

NEW YORK (TheStreet) -- Adobe (ADBE) was gaining 1% to $69.50 in after-hours trading Tuesday following positive fiscal first quarter results that beat analysts' expectations for earnings and revenue.

In the fiscal first quarter Adobe posted earnings of 30 cents a share, beating analysts' estimates by 5 cents. Analysts surveyed by Thomson Reuters expected earnings of 25 cents a share. Revenue dropped 1% from the year-ago quarter to $1 billion, which beat analysts' estimates of $973 million of revenue for the quarter.

The Photoshop developer said that more than half of its revenue for the quarter came from recurring sources include Creative Cloud subscriptions and Adobe Marketing Cloud. Adobe had 1,844,000 paid Creative Cloud subscriptions at the end of the quarter, and increase of 405 thousand from the previous quarter.

"Adobe's Q1 momentum was driven by strong adoption of Creative Cloud and Adobe Marketing Cloud," president and CEO Shantanu Narayen said in a press release. "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."

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TheStreet Ratings team rates ADOBE SYSTEMS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ADOBE SYSTEMS INC (ADBE) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ADBE's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, ADBE has a quick ratio of 2.47, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for ADOBE SYSTEMS INC is currently very high, coming in at 92.31%. Regardless of ADBE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ADBE's net profit margin of 6.27% is significantly lower than the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Software industry and the overall market, ADOBE SYSTEMS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Net operating cash flow has decreased to $314.98 million or 33.50% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: ADBE Ratings Report

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