"We believe the subscription transition is a TAM-expanding move," analysts said, referring to the Technology Acceptance Model, an information systems theory that models how users come to accept and use a technology.
The analyst firm added that even though it may ultimately dilute the ARPU from the original $40 price target, the larger subscriber base should drive revenue, earnings, and cash flow to levels above expectation.
Separately, Adobe Systems announced recently that it will partner with Microsoft Corp. (MSFT) to transform and redefine how enterprises manage their marketing, sales and customer service to better engage their customers.
Shares of Adobe Systems closed up 3.05% to $79.43 yesterday.
TheStreet Ratings team rates ADOBE SYSTEMS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate ADOBE SYSTEMS INC (ADBE) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. 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, increase in net income, solid stock price performance and growth in earnings per share. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Although ADBE's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average. To add to this, ADBE has a quick ratio of 2.07, which demonstrates the ability of the company to cover short-term liquidity needs.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 80.4% when compared to the same quarter one year prior, rising from $47.05 million to $84.89 million.
- Powered by its strong earnings growth of 88.88% and other important driving factors, this stock has surged by 27.46% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- ADOBE SYSTEMS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ADOBE SYSTEMS INC reported lower earnings of $0.52 versus $0.57 in the prior year. This year, the market expects an improvement in earnings ($2.09 versus $0.52).
- You can view the full analysis from the report here: ADBE Ratings Report