Adobe Earnings Preview: What We’re Watching
Adobe (NASDAQ:ADBE) will report its Q3 FY11 earnings on September 20. In this article, we take a look at some of the key items which we think will drive Adobe’s results this quarter. Adobe generates a majority of its revenues from its Creative Software suite which is comprised of image, video and design applications like Photoshop, Dreamweaver, Flash and InDesign. It reported more than a billion dollars in revenue last quarter and during the last earnings call, Adobe revised its revenue outlook for Q3 FY11 to $1 billion – $1.05 billion and projected 10% revenue growth for fiscal year 2011. Adobe competes primarily with Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Quark and Corel in the creative software market.
Our current Trefis price estimate of $35 stands nearly 40% above Adobe’s market price.
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Adobe’s Growth Will be Driven by Creative Software…
Creative Software contributed almost 45% of Adobe’s revenue in the last quarter and accounts for more than 50% of Adobe’s $35 Trefis price estimate. Creative Suite 5.5 was a hugely successful launch, and in the last quarter Adobe has added additional features and software to the Creative Suite. It recently announced that it will add enhanced video editing capabilities to Premiere Pro. It also announced Adobe Edge for web development using HTML 5 (read Trefis article: Adobe Embraces HTML5 with Edge, Heading to $35), and Adobe Muse, for code-free website creation (read Trefis article: Adobe’s Muse: Website Building for Dummies). With the addition of these new features, we expect the average pricing of the Adobe Creative Suite to continue to increase in the future, which is included in our model.
Adobe is currently the leader in the creative software market, and we expect it to continue to lead the market with around 43% market share until the end of the forecast period.
… and Document Tools
Adobe has also been investing in improving its Acrobat document publishing and collaboration tools. It recently announced the acquisition of EchoSign to add digital signature features to Acrobat (read Trefis article: Adobe Aims for $35 with EchoSign Acquisition) and also launched PDF creation tools for iOS devices, which will enable it to reach a large growing market of tablet and smartphone users (read Trefis article: Adobe Launches PDF Creation Tools for iOS). Growth in these two segments will continue to drive Adobe’s stock in the future.