Morgan Stanley Likes Adobe's Story, But Remains Equal-Weight Because Of Valuation

In a report published Wednesday, Morgan Stanley analyst Keith Weiss maintained an Equal-Weight rating on

, with a price target of $75, with the company "executing to plan" in 2Q. Adobe recorded net sub adds of 639K in Q2, handsomely beating the Morgan Stanley and consensus estimates of 545K and 575K, respectively. Suite adds were broadly flat QoQ, while Point products grew 42 percent sequentially and constituted 63 percent of the net new subs added. "These results differed vs the seasonality we saw a year ago, but considering that there were no promotions running in Q2 we believe this could simply be the natural flow of subscribers. With healthy subs adds in Q2 and going into a typically strong education quarter in Q3, management's 5.9M subs target for FY15 seems well within reach," analyst Keith Weiss wrote. While ARPU declined modestly in 2Q, Adobe may be able to drive ARPU higher going ahead, with its product portfolio continuing to become richer. The higher ARPU, along with converting CS5/6 holdouts and attracting new users into the ecosystem, should "add up to strong growth of ARR." Weiss commented, "With the announced release of CC2015, we saw a number of new features that could remove enterprise adoption obstacles (on-prem storage, Cloud content security, deeper Marketing Cloud integration) as well as entice individual/team adoption through improved everyday workflows." Moreover, the release of Adobe Stock, with a price tag of $30 per month and "the potential for a high attach rate," could reverse the ARPU declines witnessed in the recent years. "We like the story, but with the stock near all-time highs we remain EW," the report added.