Adobe's Slowing Digital Marketing Could Be An Overhang

Oppenheimer believes Adobe Systems Incorporated ADBE's slowing digital marketing could be a worry factor though the company delivered strong second quarter results. The brokerage has a rating of Perform on the stock.

The analysts said, "We maintain a Perform rating on a balanced near-term risk/reward profile, but think potential new investors will be disappointed in the F3Q Digital Marketing growth guidance, though the negative optic mostly reflects a tough y/y comparison."

The brokerage thinks management expects to "meet or exceed" its fiscal year 2016 targets, which would derisks the company's second half apart from supporting ADBE's valuation given a scarcity of large-cap software names with sustainable strong growth and enhancing profit margin.

The analysts' confidence was due to the fact that Adobe delivered PF operating margin of 33.1 percent, which was +570bps year-over-year and faster rate of margin expansion than the preceding quarter. They have noted that OCF was $489 million, which was +4 percent year-over-year  and ~$16 million above consensus.

On the flip side, the brokerage thinks F3Q Marketing Cloud growth guidance of ~7% year-over-year implied an ~11 point sequential deceleration in the growth optic. Secondly, its Digital Media revenue and Print and Publishing revenue were slightly below consensus. Thirdly, the management expressed being opportunistic for acquisitions thus raising M&A risks and could slow the pace of operating margin expansion.

he stock traded down 4.7 percent at $94.97 on Wednesday.