Can Adobe Finish Its Fiscal Year On A High Note?

After beating market expectations in Q3, Adobe (NASDAQ:ADBE) has been in the news for its pricey acquisition of Marketo, its open data initiative with Microsoft and SAP, as well as reporting an increase in its estimated total addressable market (TAM), as well as renewed conjecture that it could potentially be acquired. While cloud stocks have come under pressure of late, if Adobe management’s recent trend of guiding above market expectations (as was done in Q3 for Q4) spills over to the next fiscal year, the company’s stock is likely to have some upside. Below we discuss what we will be watching when the company reports its fiscal Q4 earnings on Thursday, December 13.

We currently have a price estimate of $238 per share for Adobe, which is around 10% higher than 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.

Since Adobe began transitioning its business towards Experience Cloud, the company’s growth trajectory seems to have accelerated. Per the company’s annual filings, Adobe processed 186 trillion transactions in fiscal 2017 (+107% y-o-y). While the average price per transaction has been falling, the volume growth has enabled the company to deliver 20%+ growth rates. In order to further its ecosystem of Creative and Experience clouds, Adobe has also been growing inorganically, with the acquisitions of Magento and Marketo as the most recent examples. In addition, the company had entered into an agreement with Microsoft and SAP to develop a common data framework that would be portable across the platforms of the three companies. This alliance is likely to give Adobe access to a bigger chunk of customer data, thus helping it enhance its offerings in the Experience Cloud.

Given the volume of activity around Adobe, in addition to headline metric growth for the next fiscal year, we will also be looking out for the following in the company’s earnings::

• Update on the commerce cloud integration from Magento and the marketing automation capabilities from Marketo
• Commentary on benefits to the Experience Cloud from the Microsoft-SAP-Adobe alliance

The theme of cloud adoption, the growing strength of Adobe’s product stack (by way of alliances and acquisitions) and the increasing focus on personalizing customer experience are likely to help Adobe deliver a market-beating performance.

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