Categories AlphaGraphs, Analysis, Technology

Earnings preview: Adobe has a lot of upside in 2019

Adobe (ADBE) stock touched an all-time peak of $275.49 on October 1.  Since then, the stock is down 13%, primarily as part of the broad-based tech sell-off. This dip, in fact, offers a great buying opportunity for investors who are looking for a blue-chip tech stock going into its earnings.

The maker of Photoshop software is scheduled to report fourth-quarter earnings on December 13, Thursday, after the closing bell. Analysts expect the company to report earnings of $1.89 per share on a revenue of $2.42 billion.  The earnings projection represents a 50% increase from the same period last year.

Despite the recent declines, the stock has gained 37% in the trailing 12-month period and analysts continue to see more upside in 2019. ADBE stock has an average price target of $294.05 with an average consensus of Moderate Buy.

adobe acquisition time lineAdobe was quick to identify weakness in the software licensing model and shifted to a subscription-based model in 2012 for its Creative Cloud portfolio. While investors initially seemed a bit skeptic about this radical change, time has proven that the new revenue-generation model was the way forward for software.

Today, Adobe’s Digital Marketing segment, which runs Creative Cloud, generates a lion’s share of its profits. In fact, subscription fees account for four-fifths of Adobe’s total revenues.

Users are also benefiting from this new model, where they don’t have to purchase the latest version of the software every other year.

In the last five years, the San Jose, California-based firm has generated a 45% increase in earnings on an annual basis. Analysts have predicted a consistent 33% growth in the next five years.

Powered by cloud, Adobe is set for a repeat performance

The solid projections come on the back of the company’s solid cash position and line of recent acquisitions including Marketo for $4.75 billion and Magento for $1.6 billion. These acquisitions substantiate Adobe’s dominant positioning in the software realm and lack of any meaningful competitors.

Adding to this is the fact that most of Adobe’s revenues come from its home market, which leaves a lot of space yet to be tapped abroad. In the coming years, the company will be looking to expand its presence in both Europe and Asia.

 

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text

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