UPDATED 20:32 EDT / SEPTEMBER 17 2019

CLOUD

Adobe stock falls on light guidance

Creativity software company Adobe Inc. beat expectations on third-quarter earnings today, but the strong performance was tempered by soft guidance for the next quarter.

Adobe, which sells the popular Photoshop image editing tool and a range of cloud marketing technology services, reported a profit before certain costs such as stock compensation of $2.05 per share on revenue of $2.83 billion. That was up 24% compared to the same period a year ago.

The results were better than expected. Wall Street had forecast a profit of $1.97 per share on slightly lower revenue of $2.82 billion.

Adobe said subscription revenue came to $2.55 billion in the quarter, while product revenue was $157 million and services and support revenue came to $130 million.

The numbers were solid, but Adobe’s problem is that the good times might not last. It said it expects a profit of just $2.25 per share on revenue of $2.97 billion in the fourth quarter. That fell below the analyst consensus, which had Adobe down for earnings of $2.30 per share on revenue of $3.03 billion.

The lower forecast was enough to send Adobe’s stock down 2.8% in after-hours trading.

Investors may have also been put off by the somewhat mixed nature of the third quarter. For example, revenue from the Digital Media business, which includes Creative Cloud and Document Cloud, grew by 22%, to $1.96 billion, above the $1.93 billion consensus. But the Digital Experience business, which includes the company’s Marketo analytics offering, missed expectations, with revenue of $821 million versus the $822.5 million consensus.

One reason for the miss is that some bookings were delayed in the third quarter. In a conference call, Adobe Chief Financial Officer John Murphy said the delays came from the midmarket segment and that the company had responded by boosting investment in sales and demand generation.

“In addition, there were Analytics Cloud subscription bookings delays with related shortfalls in consulting services bookings and revenue associated with the launch of our new Adobe Experience Platform,” Murphy said.

Analyst Charles King of Pund-IT Inc. said that’s a problem because Analytics Cloud is generally viewed as a key part of Adobe’s future strategy. Still, he said shortfalls of this nature were to be expected because it’s still a relatively new business for Adobe.

“It’s been less than a year since Adobe completed its $4 billion plus purchase of Marketo and, frankly, it takes time to fully incorporate so large an acquisition and to communicate its potential to customers, partners and the market,” King said.

King added that the larger question for Adobe is whether global economic and political uncertainties might affect its plans and those of its enterprise customers.

“That said, Adobe has prospered under its current leadership, so it’s reasonable to extend them some latitude in terms of their future expectations,” he said.

Photo: Adobe MAX/Flickr

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