Adobe Systems Incorporated (ADBE), Google Inc (GOOG): Does This Cloud Have a Silver Lining?

Silver lining?

Adobe has posted strong initial subscription numbers, and also has a good opportunity in its 1 million free subscribers. But, investors need to keep a close eye on the company’s current subscribers, and with the company’s willingness to disclose subscription on a per-week basis; it will be easier to do so.

Further, Adobe has faced a downgrade in its ratings from few research analysts. Goldman Sachs downgraded it to a sell rating and Stifel Nicolaus downgraded it to a hold rating, citing lower earnings guidance and high valuation. It’s high PE of 31 (vs. Microsoft’s 16, Oracle’s 15 and Google’s 24), seems a very high price to pay for it’s less than 5% growth along with the conspicuous absence of a dividend policy.

Versus competitors

Now I know, looking at the numbers, it isn’t fair to compare Adobe Systems Incorporated (NASDAQ:ADBE) to the two mammoths which have revenue and market caps 10 times that of Adobe, but then nothing is fair in love and war.

Microsoft reported a slight decline in its 2Q13 EPS, but revenue increased 2% due to strong sales from its Windows operating system and the latest release of Windows 8. Its online services segment, which includes in its digital marketing platform, contributes only 4% of total sales, but grew 11% in 2Q13. The company did not provide any guidance, but analysts expect EPS of $0.78 and total revenue of $20.7 billion for the current quarter.

On the other hand, Google Inc (NASDAQ:GOOG) announced an uptick in its 4Q12 results, beating analyst expectations. 4Q12 EPS increased 12% to $10.6 from last year. Google’s core business revenue, which include Google Sites and Google Network, came in at $12.9 billion, beating analyst expectations. Google Sites revenue increased 18% y-o-y and Google Inc (NASDAQ:GOOG) Network revenue increased 19% y-o-y.

Conclusion

I would still consider Adobe Systems Incorporated (NASDAQ:ADBE) a great name in the tech space. It has great growth opportunities as it transitions from a desktop software to a cloud-based service provider and constantly develops more products. However, if the company were not to meet its guidance or increase its subscriptions, it would be nothing but serious disappointment.

Shas Dey has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems and Google. The Motley Fool owns shares of Google and Microsoft.