Adobe Analyst Reactions To Q2 Print Range From 'Solid' To 'Boringly Excellent'

Adobe Inc ADBE reported Tuesday afternoon with second-quarter results that were highlighted by 25% year-over-year revenue growth to a record quarterly high of $2.74 billion. Here's how the Street reacted.  

The Analysts

Wedbush's Daniel Ives maintained a Neutral rating on Adobe's stock with a price target lifted from $270 to $290.

Canaccord Genuity's Richard Davis maintained at Buy, price target lifted from $300 to $320.

Wells Fargo's Philip Winslow maintained at Market Perform, price target lifted from $250 to $275.

Bank of America Merrill Lynch's Kash Rangan maintained at Buy, price target lifted from $312 to $323.

Wedbush: 'Solid' Quarter

Adobe reported a "solid" second quarter report highlighted by 22% year-over-year growth in the digital media business, Ives said in a Wednesday note.

The "annualized recurring revenue machine" of a company has a core business in the "middle innings" of a growth cycle with "some fuel left," the analyst said. 

The recent acquisitions of Magento and Marketo helped Adobe cross-sell to enterprise customers and win new clients, Ives said.

This supports "relatively healthy demand trends" for Adobe, which is encouraging, as recurring revenues account for more than 90% of total revenue, he said. 

Despite an encouraging earnings report, the enterprise software space has created a feeling of "general nervousness" over the past few weeks, Ives said.

Coupled with ongoing concerns with Adobe's B2B business, a neutral stance on the stock is warranted at this time, he said. 

Related Link: Adobe Shares Drops On Poor Guidance, But Sell-Side Analysts Less Worried

Canaccord: 'Boringly Excellent'

Adobe reported another "boringly excellent" quarter with a best-in-class margin rate and revenue growth north of 20%, Davis said in a Tuesday note. 

Some of the analyst's bullish takeaways from the quarter were:

  • Digital media ARR rose by $406 million versus expectations of $307 million.
  • Remaining performance obligation rose $240 million from the prior quarter to $8.37 billion.
  • Multiple new partnerships were announced.
  • The company bought back 2.5 million shares and still has $6.6 billion in authorization remaining.

BofA On Adobe's Aftermarket Move

Adobe's stock moved higher immediately following the earnings release Tuesday for three reasons, Rangan said in a Wednesday note. 

First, investor concerns related to Creative Cloud promotions and discounts didn't materialize, as direct marking ARR exceeded management's guidance by more than $36 million, he said. 

Second, Adobe's third-quarter ARR guidance growth of $360 million represents a 10% decrease quarter-over-quarter, the analyst said. Yet it is "not any different" from third-quarter guidance in 2018 that pointed to a 10% drop, but ultimately came in better than expected, he said. 

Third, the company could end the fiscal year with an operating margin between 43% and 44% and an EPS between $8-$8.05 versus the Street's estimate of $7.82, Rangan said. 

Wells Fargo Eyes Guidance

Adobe guided its third-quarter revenue and EPS shy of the Street, while management's 20% digital media revenue growth outlook implies sales will come at around $1.932 billion versus the consensus estimate of $1.933 billion, Winslow said in a Tuesday note.

Adobe's 34% growth in the Adobe Experience Cloud revenue business implies revenue of around $823 million versus expectations of $826 million, the analyst said. 

Price Action

Adobe shares were up 4.35% at $288.83 at the time of publication Wednesday. 

Related Link: Morgan Stanley Turns Bullish On Adobe, Highlights 'Durable' 20% EPS Growth

Posted In: Adobe CloudBank of America Merrill LynchCanaccord GenuitycloudDaniel IvesDigital MarketingKash RanganPhilip WinslowRichard DavisWedbushWells FargoAnalyst ColorEarningsNewsGuidancePrice TargetReiterationAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.