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Adobe Systems (ADBE) to Report Q1 Earnings: What's in Store?

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Adobe Systems Inc. (ADBE - Free Report) is set to report fiscal first-quarter 2019 results on Mar 14. In the last reported quarter, the software giant delivered a negative earnings surprise of 3.85%.

Nonetheless, the surprise history has been decent in Adobe Systems’ case. The company surpassed estimates in three of the last four reported quarters, with average positive surprise of 3.41%.

In fiscal fourth-quarter 2018, adjusted revenues increased 23% year over year to $2.46 billion, beating the Zacks Consensus Estimate of $2.43 billion. Excluding the acquisition of Marketo, revenues came in at 2.44 billion. Non-GAAP earnings of $1.83 per share increased 5.8% sequentially and 45.2% on a year-over-year basis.

The growth was driven by contribution from Marketo acquisition, strong demand for the company’s innovative solutions and products, strength across geographies, along with growing subscriptions for its cloud application.

The company’s shares have returned 15.3% in the past year compared with its industry’s rally of 12.3%.

Strength in Digital Media Business

Revenues from Digital Media Solutions increased 23% year over year to $1.71 billion in the last reported quarter. Total Digital Media ARR (Annualized Recurring Revenues) amounted to $6.83 billion. Impressive growth in Creative Cloud and Document Cloud business lines should lead to strong total Digital Media ARR in the to-be-reported quarter.

The segment comprises Creative Cloud (CC) and Document Cloud (DC). In the fiscal fourth quarter, Creative ARR increased by a record $373 million and Creative revenues totaled $1.45 billion, up 26% from the year-ago period. Net new subscriptions, adoption of enterprise services and focus on high-potential segments like education are likely to drive Creative ARR in the fiscal first quarter.

Also, DC ARR is expected to increase in the quarter to be reported, driven by Adobe Sign that is now considered as 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. The new capabilities in Adobe Target will further enhance customer recommendations and targeting, optimize experiences, as well as automate the delivery of personalized offers, thereby expanding revenues in this segment.

Guidance

For first-quarter fiscal 2019, Adobe expects year-over-year revenue growth of 20% and 31% from Digital Media and Digital Experience segment, respectively. Based on a share count of 495 million, management expects GAAP and non-GAAP earnings to be $1.14 and $1.60 per share, respectively.

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, Adobe Systemshas a Zacks Rank #3 and an Earnings ESP of 0.00%, 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 +0.54% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Verizon Communications Inc. (VZ - Free Report) has an Earnings ESP of +2.87% and a Zacks Rank #3.

PayPal Holdings, Inc. (PYPL - Free Report) has an Earnings ESP of +1.03% and a Zacks Rank #3.

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