Increasing Demand For Digital Transformation Solutions Should Have Boosted Adobe’s Fiscal Q2 Results

by Trefis Team
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Adobe (NASDAQ:ADBE) reports its fiscal Q2 2019 earnings on Tuesday, June 18. The company had reported Q1 results ahead of consensus estimates, while revising its guidance to align better with its newly adopted accounting standard. The strength in the company’s experience cloud should continue to help margins expand. We also anticipate the benefits of Adobe’s alliance with Microsoft and SAP to start contributing to strength in the company’s analytics business.

Per Trefis estimates, Adobe’s shares have a fair value of $259, which is roughly 5% below 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, and see all of our technology company data here.

A Quick Look At Adobe’s Revenue Sources

Adobe makes money by selling software for creative content and marketing purposes, with a focus on building on user experience. The company’s products are offered as subscription and through licenses. Adobe has three segments:

  • Digital Media (2018 revenue of $6.3 billion, 70% of total revenue): Segment revenue is derived from the sale of subscriptions to Creative Cloud (Photoshop, Illustrator, Premiere Pro, Lightroom CC, InDesign, Adobe XD etc) and Document Cloud (Adobe Acrobat, Adobe Sign and Adobe Scan).
  • Digital Experience (2018 revenue of $2.4 billion, 27% of total revenue): Segment revenue is derived from the sale of subscriptions to Adobe Experience Cloud, a cross-channel marketing optimization tool that includes analytics, targeting, campaign management, content delivery and commerce enablement.
  • Publishing (2018 revenue of $0.3 billion, 3% of total revenue): Segment revenue is derived from the sale of licenses to legacy products such as eLearning, technical document publishing, web conferencing etc to OEMs.

Performance Over Recent Quarters, And Expectations For Q2 and Full-Year 2019:

Total revenues have grown by $3.2 billion over 2016-18 at a CAGR of 24.2%. 2018 revenue grew to $9 billion (23.7% y-o-y). Q1 revenue had increased to $2.6 billion (25.1% y-o-y). We expect Q2 revenues to grow to $2.7 billion (25.2% y-o-y) and 2019 revenues to increase to $11 billion (22.1% y-o-y).

  • Digital media: Segment revenues have grown by $2.4 billion over 2016-18 at a CAGR of 26.7%. 2018 revenue grew to $6.3 billion (26.2% y-o-y). Q1 revenue had increased to $1.8 billion (21.6% y-o-y). We expect Q2 revenues to grow to $1.9 billion (20.9% y-o-y) and 2019 revenues to increase to $7.9 billion (25% y-o-y).
  • Digital experience: Segment revenues have grown by $0.8 billion over 2016-18 at a CAGR of 22.4%. 2018 revenue grew to $2.4 billion (20.4% y-o-y). Q1 revenue had increased to $0.7 billion (34.1% y-o-y). We expect Q2 revenues to grow to $0.8 billion (36.3% y-o-y) and 2019 revenues to increase to $2.9 billion (17% y-o-y).
  • Publishing: Segment revenues have declined by $20 million over 2016-18 due to the company reducing its focus on legacy businesses. 2018 revenue grew to $0.3 billion (0.1% y-o-y). We expect these revenues to remain largely flat compared to the previous quarter.

We forecast Adobe’s EPS figure for full-year 2019 to be $5.76. Taken together with our forward P/E multiple of 45x for the company, this works out to a $259 per share price estimate for the company’s stock, which is lower than the current market price.

Do not agree with our forecast? Create your own price forecast for Adobe by changing the base inputs (blue dots) on our interactive dashboard.

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