The San Jose, Calif.-based company reported fiscal fourth-quarter adjusted profit of 36 cents a share on revenue of $1.07 billion, exceeding analysts' estimates.
Adobe also announced the acquisition of Fotolia, a stock image and video company, for $800 million in cash. Fotolia will be integrated into Adobe Creative Cloud, which makes software products available through a monthly subscription. Adobe said Fotolia runs a marketplace of royalty-free photos, graphics, and video with 34 million images and videos.
Must Read: Adobe's Fourth Quarter Conference Call Transcript
Adobe expects revenue and earnings in fiscal 2015 to "grow sequentially every quarter during the year," Chief Financial Officer Mark Garrett said in the earnings release.
The stock was trading 8.4% higher on Friday to $75.62. Here's what analysts said.
Brendan Barnicle, Pacific Crest Securities (Outperform; $85 PT)
ADBE exceeded FQ4 (Nov.) expectations. It provided very strong F2015 guidance for ARR and subscribers, which increases our confidence in the long-term model. While we are making only modest adjustments to our F2015 estimates, we are increasing our F2016 estimates and raising our target to $85.
With the prospect of $3.40 in EPS in F2016 and as much as $5.00 in F2017, ADBE could trade to at least $85, if not higher. Adobe is the industry leader in creative software, and with the introduction of the Creative Cloud, Adobe is making its creative software available to more users. In addition, Adobe is using its leadership in creative software to expand into marketing applications, which have a significantly larger market. Furthermore, Adobe is combining its creative solutions and marketing solutions to develop entirely new solutions, which could drive prolonged growth and outperformance.
Nandan Amladi, Deutsche Bank (Buy; $85 PT)
Adobe reported solid 4Q14 results with rev/EPS of $1.07b/$0.36, vs. Cons. of $1.06b/$0.30 and our $1.05b/$0.29 ests due to solid net adds for the creative cloud subs (644k CC subs in 4Q14 vs. 502k in 3Q14). Mgmt guided F15 rev/EPS to $4.85b (+17% y/y)/$2.05, below cons of $4.92b/$2.07, but reiterated 20% rev CAGR for F14-F16 as Adobe continues to see solid traction for its products with net adds benefiting from single app purchases. We see ADBE continuing to outperform among our large-cap coverage, with valuation still attractive on a growth-adjusted basis. We reiterate our Buy rating and raise our PT to $85 from $80.
Patrick Walravens, JMP Securities (Market Outperform; $82 PT)
We maintain our Market Outperform rating and $82 price target on Adobe Systems after the company reported strong results on its F4Q14 earnings call on Thursday, beating on revenue ($1.07B vs. consensus of $1.06B) and non-GAAP EPS ($0.36 vs. consensus of $0.30), leading the stock to trade up 8% in the aftermarket. The company guided to FY15 revenue of $4.85B (up 17%), below consensus of $4.93B (up 19%), and to non-GAAP EPS of $2.05, below consensus of $2.07, which we believe reflects: 1) pressure due to foreign exchange (29% of Adobe's revenue came from EMEA, and 14% came from Asia in 4Q); and 2) conservatism. We continue to like Adobe for the following reasons: 1) the company is at the end of its successful transition to a subscription-based business; 2) recurring revenue continues to grow in terms of the proportion of total revenue (66% this quarter vs. 44% in F4Q13 and 27% in F4Q12); and 3) we believe Adobe is benefiting from the transition to a more digitally based economy, which should help both of its major segments, Digital Media and Digital Marketing.
In light of guidance, we reduce our FY15 non-GAAP EPS estimate to $2.08 from $2.14 (consensus $2.07) on revenue growth of 19% (consensus 19%), and reduce our FY16 non-GAAP EPS estimate to $3.49 from $3.50 (consensus $3.28) on revenue growth of 23% (consensus 23%).
Heather Bellini, Goldman Sachs (Neutral; $78 PT)
The focus of the quarter was on FY15 guidance with Adobe expecting to exit the year with 5.9mn subscribers, which implies adding 2.45mn net subscribers versus the 2.0mn added in FY14. Management explained that single-app subscribers (versus suite subs) are becoming a larger part of the mix and should increase going forward. Though this dynamic brings blended-ARPU down, management highlighted that it expands its market opportunity and increases ARR while holding the potential to convert these single-app subs to suite users. While we're increasing our FY15 subscriber forecast (ending the year at 5.9mn versus our prior assumption of 4.2mn), we are now expecting ARPU to see sequential decreases, exiting the year at ~$28 versus our prior expectation of ~$36. All-in, this doesn't materially change our financial forecasts with our new FY15 non- GAAP EPS estimate just going up $0.01 to $2.07.
Walter Pritchard, Citigroup (Buy; $93 PT)
With Creative revenue opportunity looking larger on higher subs and stable core ARPU, earnings power is also higher. Digital marketing continues to track above growth of this nascent market and adds 6-7pts of growth above and beyond Creative. With sub assumptions moving higher and ARPU down less than this, our FY17 FCF moves higher and so does our price target, which is based on this estimate.
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 revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ADBE's revenue growth trails the industry average of 26.8%. Since the same quarter one year prior, revenues slightly increased by 1.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- ADBE's debt-to-equity ratio is very low at 0.22 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 1.80, which demonstrates the ability of the company to cover short-term liquidity needs.
- Compared to its closing price of one year ago, ADBE's share price has jumped by 30.29%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 46.2% when compared to the same quarter one year ago, falling from $83.00 million to $44.69 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market, ADOBE SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: ADBE Ratings Report