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Adobe Systems (ADBE) to Report Q3 Earnings: What's in Store?

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Adobe Systems Inc. (ADBE - Free Report) is set to report fiscal third-quarter 2018 results on Sep 13. In the last reported quarter, the software giant delivered a positive earnings surprise of 7.79%.

The surprise history has been impressive in Adobe’s case. The company surpassed estimates in each of the trailing four quarters, with an average positive surprise of 8.94%.

Over the past year, the company’s shares have returned 66.3% compared with the industry’s rally of 31.5%.


Strength in Digital Media Business

Revenues from Digital Media Solutions increased 28% year over year to $1.55 billion in the last reported quarter. Total Digital Media ARR (Annualized Recurring Revenues) amounted to $6.06 billion. For the to-be-reported quarter, the Zacks Consensus Estimate for total Digital Media ARR is pegged at $6.37 billion, driven by strong growth in Creative Cloud and Document Cloud business lines.

The segment comprises Creative Cloud (CC) and Document Cloud (DC). In fiscal second quarter, Creative ARR increased $5.37 billion and Creative revenues totaled $1.30 billion, up 29% from the year-ago quarter. Creative ARR is projected at $5.65 billion, driven by net-new subscriptions, adoption of enterprise services and focus on high-potential segments like education.

Also, DC ARR are expected to increase to $721 million in the quarter to be reported, driven by Adobe Sign, which is now Microsoft’s preferred e-signature solution across the company’s portfolio.

Strength in Digital Marketing Business

Within the Digital Marketing segment, Adobe Experience Cloud revenues witnessed growth in the last reported quarter. Adobe Experience Cloud includes Adobe Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud. For the to-be-reported quarter, Adobe Marketing Cloud revenues are expected at $592 million. The new capabilities in Adobe Target will further enhance customer recommendations and targeting, optimize experiences, as well as automate delivery of personalized offers.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Currently, Adobehas a Zacks Rank #3 and an Earnings ESP of -0.15%, indicating that the company is unlikely to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

You may consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

CSX Corporation (CSX - Free Report) has an Earnings ESP of +5.80% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

FactSet Research Systems Inc. (FDS - Free Report) has an Earnings ESP of +1.13% and a Zacks Rank #2.

Netflix, Inc. (NFLX - Free Report) has an Earnings ESP of +0.49% and a Zacks Rank #3.

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