Adobe Analyst Reactions To Q2 Print Range From 'Solid' To 'Boringly Excellent'

Adobe Inc ADBE reported Tuesday afternoon with second-quarter results that were highlighted by 25% year-over-year revenue growth to a record quarterly high of $2.74 billion. Here's how the Street reacted.  

The Analysts

Wedbush's Daniel Ives maintained a Neutral rating on Adobe's stock with a price target lifted from $270 to $290.

Canaccord Genuity's Richard Davis maintained at Buy, price target lifted from $300 to $320.

Wells Fargo's Philip Winslow maintained at Market Perform, price target lifted from $250 to $275.

Bank of America Merrill Lynch's Kash Rangan maintained at Buy, price target lifted from $312 to $323.

Wedbush: 'Solid' Quarter

Adobe reported a "solid" second quarter report highlighted by 22% year-over-year growth in the digital media business, Ives said in a Wednesday note.

The "annualized recurring revenue machine" of a company has a core business in the "middle innings" of a growth cycle with "some fuel left," the analyst said. 

The recent acquisitions of Magento and Marketo helped Adobe cross-sell to enterprise customers and win new clients, Ives said.

This supports "relatively healthy demand trends" for Adobe, which is encouraging, as recurring revenues account for more than 90% of total revenue, he said. 

Despite an encouraging earnings report, the enterprise software space has created a feeling of "general nervousness" over the past few weeks, Ives said.

Coupled with ongoing concerns with Adobe's B2B business, a neutral stance on the stock is warranted at this time, he said. 

Related Link: Adobe Shares Drops On Poor Guidance, But Sell-Side Analysts Less Worried

Canaccord: 'Boringly Excellent'

Adobe reported another "boringly excellent" quarter with a best-in-class margin rate and revenue growth north of 20%, Davis said in a Tuesday note. 

Some of the analyst's bullish takeaways from the quarter were:

• Digital media ARR rose by $406 million versus expectations of $307 million.
• Remaining performance obligation rose $240 million from the prior quarter to $8.37 billion.
• Multiple new partnerships were announced.
• The company bought back 2.5 million shares and still has $6.6 billion in authorization remaining.

BofA On Adobe's Aftermarket Move

Adobe's stock moved higher immediately following the earnings release Tuesday for three reasons, Rangan said in a Wednesday note. 

First, investor concerns related to Creative Cloud promotions and discounts didn't materialize, as direct marking ARR exceeded management's guidance by more than $36 million, he said. 

Second, Adobe's third-quarter ARR guidance growth of $360 million represents a 10% decrease quarter-over-quarter, the analyst said. Yet it is "not any different" from third-quarter guidance in 2018 that pointed to a 10% drop, but ultimately came in better than expected, he said. 

Third, the company could end the fiscal year with an operating margin between 43% and 44% and an EPS between $8-$8.05 versus the Street's estimate of $7.82, Rangan said. 

Wells Fargo Eyes Guidance

Adobe guided its third-quarter revenue and EPS shy of the Street, while management's 20% digital media revenue growth outlook implies sales will come at around $1.932 billion versus the consensus estimate of $1.933 billion, Winslow said in a Tuesday note.

Adobe's 34% growth in the Adobe Experience Cloud revenue business implies revenue of around $823 million versus expectations of $826 million, the analyst said. 

Price Action

Adobe shares were up 4.35% at $288.83 at the time of publication Wednesday. 

Related Link: Morgan Stanley Turns Bullish On Adobe, Highlights 'Durable' 20% EPS Growth