Goldman Sachs Says Adobe Is Showing Leverage In The Model, Raises Price Target To $112

Adobe Systems Incorporated ADBE reported its FQ3:16 results ahead of the consensus expectations, while raising its EPS guidance for FY16.

Goldman Sachs’ Heather Bellini maintains a Neutral rating on the company, while raising the price target from $104 to $112.

Beat Results

Adobe Systems reported its FQ3:16 revenue at $1.464 billion, marginally ahead of the consensus and at the high end of the guidance.

The non-GAAP EPS came in at $0.75, ahead of the consensus and once again at the high end of the guidance, driven by improved margins.

Related Link: Is Adobe's Strong Performance Already Priced In?

The company also reported 14 percent year-on-year growth in non-GAAP operating expenses, ahead of the 10 percent growth reported for FQ2:16.

“Digital Media ARR came in line with management’s expectation for a $285 million build to $3.7 billion, in line with the $285 million added last quarter and compared to +$290 million In F3Q15. This was comprised of a $258 million Creative Cloud ARR build (GSe: $260 million) and a $27 million Document Cloud ARR build,” Bellini mentioned.

Guidance

Management reiterated its guidance of digital media ARR of $4 billion exiting FY16, suggesting that the FQ4:16 build would be slightly higher than $300 million, as compared to $350 million in FQ4:15.

Adobe Marketing Cloud revenue posted upside, growing 10 percent year on year, as compared to the guidance of 7 percent, while management reiterated the FY16 target of 20 percent year on year growth, implying FQ4:16 growth of 30 percent.

The non-GAAP EPS guidance for FY16 was raised from $2.80 to $2.94–$3.00, ahead of the consensus forecast, along with a modest revenue guidance increase from $5.90 billion to $5.80–5.85 billion.

“While Adobe is demonstrating leverage in its model in F2H, management cautioned that opex growth could remain elevated through FY18 as it continues to ramp sales staff and spend on marketing,” the analyst added.

At time of writing, Adobe was up 6.58 percent on the day at $107.24.

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