What Is Adobe’s Outlook Post-Q4 Earnings?

Adobe (NASDAQ:ADBE) reported its fiscal Q4 earnings on Thursday, December 13. While the company delivered a beat on revenues, non-GAAP EPS missed expectations slightly (though it did come in higher than expectations after adjusting for the Marketo acquisition). Not only did the company see solid growth in Q4, but management also expects this growth momentum to continue in fiscal 2019. That said, the company’s stock traded down following the earnings, as management’s guidance came in below expectations.

We currently have a price estimate of $276 per share for Adobe, which is around 10% higher than the current market price. Our interactive dashboard on Adobe’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

Adobe reported Q4 revenue (ex-Marketo) of $2.44 billion versus management target of $2.42 billion. Adobe acquired Marketo in October 2018, and it contributed to $21 million in Q4, bringing the total Q4 revenue for Adobe to $2.46 billion (+23% y-o-y). Q4 non-GAAP EPS came in at $1.83, diluted by around $0.70 due to the Marketo acquisition. Adjusting for the Marketo acquisition, EPS of $1.90 was also higher than management’s target of $1.87.

For the full fiscal year 2018, the company’s revenue grew to $9 billion (+24% y-o-y) and non-GAAP EPS was $6.76. Interestingly, Adobe’s Document Cloud revenue grew to $5.34 billion (+28% y-o-y) much faster than Experience Cloud revenues, which reached $2.44 billion (+20% y-o-y).

The addition of Magento (exceeding revenue target of $30 million) and Marketo ($21 million) are likely to help fuel the company’s growth going forward. Based on management’s expectation of the momentum from Q4 spilling over into 2019, Adobe’s guidance calls for solid growth, though it was below analyst expectations. The guidance calls for:

• Q1 2019: Revenue of $2.54 billion, non-GAAP EPS of about $1.60
• Fiscal 2019: Revenue of $11.15 billion, non-GAAP EPS of $7.75

In addition to the underlying strength in business, Adobe’s growth outlook across metrics also appear to have taken into account the company’s deepening ecosystem capabilities (through Marketo and Magento) and GTM partnership with Microsoft. Adobe also mentioned having made solid progress on the open data alliance that the company has formed with Microsoft and SAP.

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