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The Street Reviews Adobe's 2019: 'Record Year'

The Street Reviews Adobe's 2019: 'Record Year'

Adobe Inc (NASDAQ: ADBE) reported fourth-quarter results Thursday that were highlighted by record quarterly revenue of $2.99 billion and record annual revenue of $11.17 billion. Here's how the Street reacted. 

Adobe's Quarter In Review

Adobe reported "excellent" an quarter that shows management is "executing well," Oppenheimer analyst Brian Schwartz said in a Friday note.

The four main positive takeaways from the quarter are as follows, the analyst said: 

  • Total remaining performance obligation rose 12% from last quarter to $9.82 billion.
  • Creative annual recurring revenue rose 23% year-over-year to $7.25 billion.
  • Document cloud revenue growth accelerated from 24% last quarter to 31%.
  • Free cash flow of $1.28 billion came in $38 million better than expected.

Schwartz had four negative takeaways:

  • Digital Experience revenue growth decelerated from 34% last quarter to 24.5%.
  • EMEA growth slowed due to foreign exchange woes.
  • Subscription revenue growth slowed from 26% last quarter to 23%.
  • PF gross margins fell for the fifth straight quarter to 85.4%.

Morgan Stanley Sees Momentum In Digital Experience

The Digital Experience business showed encouraging signs in Thursday's report, which should "lift investor sentiment," Morgan Stanley Keith Weiss said in a Friday note. 

The business is actually gaining momentum, as $859 million in revenue beat expectations, while Adobe's commentary on Marketo was "much more constructive" and the Adobe Experience Platform is seeing "significant interest" from large customers, the analyst said. 

Adobe CEO Shantanu Narayen suggested a new leader for the Digital Experience segment could be named in the coming weeks, Weiss said, adding that this is an encouraging sign, as the executive previously said a new leader would be named only once "the house was in order."

Related Link: Morgan Stanley Sifts Through Software Sector, Flags 'Picks,' 'Holds'

Adobe's 'Record Year'

Adobe's fiscal fourth quarter marks an end to a "record year," as net new ARR exceeded recently updated goals, while Digital Experience bookings stabilized at more than 20% growth, Credit Suisse analyst Brad Zelnick said in a Friday note.

Looking forward to the first quarter, Adobe's net new ARR guidance guidance of $360 million looks conservative, as the company maintained its full-year net new ARR outlook, the analyst said. 

"Despite on-going caution on Digital Experience, we anticipate that ARR momentum can continue across both Creative/Document clouds." 

Wells Fargo Has Valuation Concerns

Adobe ended fiscal 2019 with "strong momentum" and deserves credit for successfully transitioning to a subscription-based company while simultaneously increasing the total addressable market, Wells Fargo analyst Philip Winslow said in a Friday note.

Recent momentum — coupled with the opportunity in the Experience Cloud business — is already reflected in Adobe's stock, the analyst said. 

Wells Fargo's revised $315 price target is based on a LTM EV/RR multiple of 15.8 times and NTM EV/UFCF multiple of 27.6 times.

Ratings, Price Targets

  • Oppenheimer maintained at Perform. 
  • Morgan Stanley maintains at Overweight, unchanged $410 price target.
  • Credit Suisse maintained at Outperform, price target lifted from $325 to $350.
  • Wells Fargo maintained at Equal Weight, price target lifted from $285 to $315.

Price Action

Related Link: Citi Steps To Sidelines On Adobe

Latest Ratings for ADBE

Dec 2020Credit SuisseMaintainsOutperform
Sep 2020DZ BankUpgradesHoldBuy
Sep 2020StifelMaintainsBuy

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