Adobe Systems Analyst Roundup Following Q4 Earnings

Adobe Systems Incorporated (NASDAQ: ADBE) reported strong Q4 earnings Thursday and the stock responded by surging over 10 percent Friday to $77.22.

Below are highlights from analyst comments following the earnings release along with current ratings and price targets.

JMP – Market Outperform, $82 price target

“We continue to like Adobe for the following reasons: 1) the company is at the end of its successful transition to a subscription-based business; 2) recurring revenue continues to grow in terms of the proportion of total revenue (66 percent this quarter vs. 44 percent in F4Q13 and 27% in F4Q12); and 3) we believe Adobe is benefiting from the transition to a more digitally based economy, which should help both of its major segments, Digital Media and Digital Marketing.”

Deutsche Bank -Buy, $85 price target

“Management cited multiple examples of the broader use of the suite products among large enterprises using creative, marketing, video etc. Adobe also announced acquisition of Fotolia, a leading marketplace for stock photography and video, for $800 million, thereby strengthening its position as the de facto platform. The financial guidance metrics do not include Fotolia (expected to close in second half of 1Q15) but inorganic contribution should be around $80m-$85m in rev and break-even non-GAAP EPS. Fotolia’s rev today mostly comes from Europe, but the company is focused on expansion in the US post-acquisition.”

Jefferies – Buy, $90 price target

“We estimate Creative ARPU declined by ~$0.50 given a stronger mix of point vs. suite products – a trade-off that expands ADBE’s market, drives higher ARR and revenue, and creates the opportunity for future growth. Renewal rates remain ahead of internal expectations (80 percent), and Digital Media ARR exited F4Q at $1.947bn (@ Dec ’13 FX) exceeding our $1.890bn estimate. We note ARR throughout the year is pegged to prior Dec FX rates, and now re-values to $1.875bn heading into next year, based on Dec ’14 rates and stronger USD. Document Services revenue was slightly disappointing, though (forward looking) ARR of $271m well exceeded our $233m estimate, reflecting very strong bookings, likely back-end loaded.”

Citi – Buy, $93 price target

“Full suite (higher-priced) sub adds of ~322K were ahead of our ~290K estimate and accelerated from Q3 (~252K). Annual recurring revenue (leads reported revenue) was inline in Q4 and guidance for 2015 is also roughly inline. Digital marketing grew annualized bookings 30 percent although the company continues to absorb headwinds related to transition to term licensing.”

Bank of America – Buy, $90 price target

“Key metrics such as subs and ARR in the Nov Q continue to support our optimistic view of the ADBE cloud transition, and support a bullish case earnings power between $6-7. While Creative is the current focus, it also overshadows a $1.4bn revenue, 25 percent CAGR Digital Marketing business, which we believe, coming out of the Gartner Data Center conference last week, will benefit from the large increase in interest among CEOs to invest digital marketing in 2015.”

Credit Suisse – Neutral, $75 price target

“Although we are encouraged by the Creative Cloud’s ability to effectively increase the annual revenue per user versus the prior perpetual licensing model, we believe much of this enthusiasm is captured in Adobe’s current valuation. Therefore, we will monitor Adobe’s ability to (1) attract new Creative users, (2) increase Creative Cloud pricing, (3) expand operating margins ahead of expectations, and (4) continue to expand into the digital marketing market before turning positive on Adobe’s stock.”

Morgan Stanley – Equal Weight, $70 price target

“While FY15 subs guidance of 5.9M was well ahead of us at 5.1M, implied Creative ARR guidance of ~$2.50B was largely in line with our $2.45B estimate. Cut another way, ABDE plans to add 20 percent more subs in FY15 than added in FY14, but the same amount of ARR, suggesting that lower-cost SKUs will continue to lead the way. We believe price has been a primary concern for those holding off on Creative Cloud, and the challenge for ADBE will be striking the right balance between price and unit growth to maximize ARR, which is ultimately the determinate of long-term top-line growth and the metric management is most focused on, despite investor focus on subscriber count.”

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