Adobe Systems (ADBE): A Quick Take Ahead of Earnings

Despite Optimistic Management Commentary, Analysts Are Pessimistic On Adobe’s Creative Cloud

ADBE will report 1QF17 (February) results after the close on Thursday March 16th. One of the key indicators investors will be paying attention to this quarter is its Creative Cloud (CC) subscriptions. While revenue estimates have tracked closely to guidance, estimates for Creative Cloud Subscription Units have been revised down 4% for 2017 and 7% for 2018 over the last few months.

Negative Sentiment On Creative Cloud Not Yet Impacting Total Revenue

Over the past few years, ADBE’s financial model has been shifting to a subscription-based, recurring revenue model and CC subscriber unit growth is a key driver. Visible Alpha estimates were revised down 2.5% and 4.0% over the past six and three months for F2017, respectively. The downward revision in CC subscribers is even sharper for F2018 (eg., down 7% compared to six months and three months ago).

Visible Alpha shows CC subscriber unit growth consensus has been revised downward over the past six months and three months.

Source: Visible Alpha. For illustrative purposes only.

Despite the downward revision, current Visible Alpha revenue consensus remains above the company’s target range for 1QF17 ($1.64B consensus compared to $1.62B company target) and full year F2017 ($7.04B consensus compared to $6.95B company target).

A possible reason could be Management’s bullish stance. On two occasions, the company’s investor day meeting in December 2016 and most recent earnings call, ADBE’s senior management were bullish on Creative Cloud revenue growth, citing a continued migration of its non-cloud customers and general market expansion. Furthermore, they have also projected growth of 25% in Digital Media ARR (Annualized Recurring Revenue) for F2017 and a CAGR of more than 20% through F2019.

Source: Visible Alpha. For illustrative purposes only.

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