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Should You Buy Adobe (ADBE) Stock Before Earnings?

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Investors are hoping that Adobe Systems (ADBE - Free Report) can post another impressive earnings report when it announces its second quarter results Tuesday.

Shares of the software giant gained about 2.5% on Monday as the market prepared.

In each of the trailing four quarters, Adobe has beaten the Zacks Consensus Estimate by an average of 9.05%. The stock is up a slight 3.5% on the year, and the company owes most of its recent success to its shift to cloud-based technology.

ADOBE SYSTEMS Price, Consensus and EPS Surprise

ADOBE SYSTEMS Price, Consensus and EPS Surprise | ADOBE SYSTEMS Quote

 

The Cloud Helps

Once a powerhouse in the sale of licensed software, Adobe is now shooting to become the king of the cloud. Adobe has three cloud divisions: Creative Cloud, Marketing Cloud, and Document Cloud. By now, most have heard of Creative Cloud, its largest cloud business, which includes software such as Photoshop and Illustrator.

The divisions are all aptly named, and as one could guess, Marketing Cloud provides marketing and advertising services, while Document Cloud focuses on document-sharing and Adobe’s PDF file type.

We’ve seen the cloud business take off over the last couple of years, and industry leaders like Adobe and Microsoft (MSFT - Free Report) have led the way. As traditional PC sales continue to fall, software companies are being forced to adapt or die.

We are also seeing non-software companies like Amazon (AMZN - Free Report) join the fray. Amazon’s Web Services product is a cloud-based toolset that helps customers build their online presence. This is just another example of the diversity of cloud-based technology.

Times Are Changing

Of course, Adobe has not been without challenges lately. Last summer, it was revealed that a Google (GOOGL - Free Report) and Mozilla were pulling support for Adobe’s popular Flash video player plugin due to some security concerns.

Again, the decline of Flash has only served to push Adobe away from its traditional products and into new areas of the technology world. With the often solid margins that come with the cloud business, this could prove to be a good thing in the long-term.

The Numbers

Adobe is expected to post earnings of 52 cents per share on $1.40 billion in revenue. Those estimates would represent earnings and sales growth of 54.41% and 19.80%, respectively.  Heading into its report, the company has not seen any earnings estimate revision activity within the last 60 days.

Because of its current Zacks Rank and lack of estimate revision activity, it is difficult to predict whether Adobe will beat on earnings Tuesday. In the end, it will come down to the continued success of its cloud platforms, so investors will want to keep an eye on that line of the report.

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