Adobe Systems Incorporated (NASDAQ:ADBE) will release its quarterly report on Tuesday, and if analysts are correct, the report could look ugly on its face. But even with Adobe earnings likely to fall dramatically, investors have been bullish about the company’s core strategy going forward.
Stats on Adobe Systems
| Analyst EPS Estimate | $0.34 |
| Change From Year-Ago EPS | (41%) |
| Revenue Estimate | $1.01 billion |
| Change From Year-Ago Revenue | (6.5%) |
| Earnings Beats in Past 4 Quarters | 3 |
Source: Yahoo! Finance.
How will Adobe earnings read this quarter?
Analysts have had narrowly mixed views on Adobe Systems Incorporated (NASDAQ:ADBE) earnings in recent months, cutting a penny per share from their August estimates but adding a penny for the full fiscal year. The stock has done well, though, climbing about 12% since mid-June.
A good part of Adobe Systems Incorporated (NASDAQ:ADBE)’s share-price gains came after the company’s May-quarter report. Even though the company’s profits fell by two-thirds on a 10% decline in revenue, investors sent the stock higher. That’s because those drops were expected as a result of Adobe’s moving from selling its software products outright to using a cloud-based subscription model, which should result in lower upfront revenue but greater total sales in the long run based on recurring revenue streams from subscription payments.
To attract continuing subscriptions, Adobe Systems Incorporated (NASDAQ:ADBE) will have to keep its software products up to date, and the company has made substantial efforts to do so. Earlier this month, the company said it would upgrade the video tools in its Creative Cloud product to help video professionals create more effective and high-quality multimedia presentations. On the marketing side of its business, an announced new interface for its Adobe Target suite will help marketing professionals create and modify testing and targeting parameters more simply. Adobe’s acquisition of Neolane in late June for $600 million will also add to its marketing offerings with its experience in cross-channel marketing campaign management.
One issue that continues to get negative attention for Adobe is its Flash software. Facebook Inc (NASDAQ:FB) said last month that it would stop using the platform in its advertising, moving toward HTML5-based open-standards alternatives. The move doesn’t make a major impression on Adobe financially, but it still has the risk of affecting its reputation.
The interesting question is how Adobe Systems Incorporated (NASDAQ:ADBE)’s model will fare against its competitors. Google Inc (NASDAQ:GOOG) provides some free marketing-systems products, but in exchange, it keeps hold of the resulting data. Meanwhile, salesforce.com, inc. (NYSE:CRM) and Oracle Corporation (NYSE:ORCL) have used their respective cloud-based software prowess to make entries into the marketing-automation industry. But salesforce and Oracle have a big competitive disadvantage, because creative marketing professionals are already familiar with Adobe’s creative products and therefore have confidence in Adobe’s marketing suite.
In the Adobe Systems Incorporated (NASDAQ:ADBE) earnings report, watch to see how well the company does in attracting more subscribers. The key to its success will be persuading existing customers to upgrade from previously purchased software, and if Adobe can do so, it should be able to restore its sagging sales and profits over time.
The article Why You Shouldn’t Panic If Adobe Earnings Fall originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Adobe Systems, Facebook, Google, and salesforce.com and owns shares of Facebook, Google, and Oracle.
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