No Slow Down at Adobe

Adobe ADBE 614.86 -43.44 -6.60% reported 2nd Quarter earnings of $1.83 per share on revenue of $2.7 billion. The consensus earnings estimate was $1.78 per share on revenue of $2.7 billion. Revenue was up 25% year over year.

The company said it expects third quarter non-GAAP earnings of approximately $1.95 per share on revenue of approximately $2.80 billion. The current consensus earnings estimate is $2.05 per share on revenue of $2.82 billion for the quarter ending August 31, 2019.

Adobe is up a little over 3% on some fairly lackluster news. They barely beat on earnings (matched whisper number), they hit exact on revenue, they put out guidance below current estimates. What makes this a better buy today than it was yesterday? It was a decent quarter, not extraordinary.

But! They did mention the keyword that all of Wallstreet lovvvvveeeesss to hear… Cloud. Creative Cloud, Adobe’s cloud-based subscription service housing it’s… creative products… saw it’s revenue grow 27.7% to $1.89 billion, above estimates of $1.86 billion. Subscriptions instill a predictable revenue stream into an unpredictable product cycle. Terrible sentence but you get the idea…

Adobe also began digesting Magento and Marketo. Magento being an open-source e-commerce platform and Marketo providing marketing automation software. All this gets lumped into Adobe’s “Experience Cloud”, whose revenue grew 34% to $784 million, again topping estimates. The move to cloud and the possible future synergies between the two above cloud businesses could set up Adobe to be a powerhouse in this specific area.

The company is up 28%ish YTD, and slightly off it’s high for the year, although looking at action it might pop over that today if there’s any excitement in the market.

Don’t forget though, last year the company’s stock went from $277 to $206(-25%) in a matter of two months, and although it pulled right back into the $260 range in early December, it hit a low of $205 the day before Christmas(-21%). Adobe, being a highly volatile stock, will likely participate strongly in market corrections.