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Stocks in the News

Ryan McQueeney

After Adobe (ADBE) Earnings, Should You Buy Software Stocks?

AMZN AVID ADBE

Trades from $3

Software giant Adobe Systems (ADBE - Free Report) reported its third-quarter fiscal 2016 earnings on Wednesday, with solid results on both the top and bottom lines. The industry leader is performing well, which is forcing many investors to ask: should I be buying software stocks right now?

Adobe Looking Good

Adobe’s adjusted earnings came in at 60 cents per share, which beat the Zacks Consensus Estimate two cents. The company also beat our revenue expectations, with total sales coming in at $1.46 billion versus our consensus estimate of $1.453 billion.

Furthermore, Adobe’s revenue figure increased 4.7% sequentially and 20.4% year-over-year. Overall, Adobe’s report once again proved that cloud-based solutions are driving software companies; subscriptions made up 80% of Adobe’s total revenue, which includes its Creative Cloud and Document Cloud platforms.

Adobe’s management is optimistic about Creative Cloud adoption and expects to build a strong pipeline for potential Creative Cloud paid subscribers through marketing programs, trial downloads and free memberships.

Industry Outlook

While the cloud certainly impacts companies outside of the traditional computer software business, it has been interesting to see how software providers have adapted to a world where computing no longer depends on downloadable programs and instead opts for cloud-based services.

The transition certainly has not been seamless, and the software industry currently sits in the bottom 42% of the Zacks Industry Rank. Nevertheless, there are 11 companies in the sector that currently have a Zacks Rank #2 (Buy) or higher, including Adobe.

Stocks to Buy

If you’re a believer in software companies with cloud-based offerings following Adobe’s impressive earnings report, check out Avid Technology (AVID - Free Report) and Infoblox .

Avid Technology, the world’s leading provider of audio/visual production software, recently moved its business over to Amazon’s (AMZN - Free Report) Web Services platform and increased its cloud-based collaboration features.

Infoblox is engaged in the development of datacenters for private cloud networks. The company helps other businesses improve their IT agility, reduce operating costs, and enable faster time to service.

Both of these stocks currently have a Zacks Rank #1 (Strong Buy) and could ride their cloud-based momentum even higher.

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