Shares of Adobe (ADBE 255.96, -11.73, -4.38%) are trading lower after the company
reported another noisy quarter yesterday afternoon. Not only is Adobe
integrating two sizable acquisitions, but the company adopted the ASC 606
accounting standard, which impacted the comparability of results to estimates.
Adobe reported fairly strong first quarter results. Revenue grew 21% and came in modestly above guidance, as did adjusted earnings.
Digital Media Annualized Recurring Revenue (ARR) grew $357 mln quarter/quarter to $7.07 bln, above the $330 mln guidance.
Adobe provided guidance for the second quarter and fiscal 2019 under ASC 606, which made it not directly comparable to analyst estimates. Adobe guided second quarter adjusted EPS modestly below estimates for the second straight quarter. The Marketo acquisition continues to muddy results. Revenue for the second quarter was guided roughly in-line.
For Fiscal 2019, Adobe raised EPS guidance slightly, reaffirmed revenue but raised the important metric -- net new Digital Media ARR to $1.50 bln from $1.45 bln.
While the Adobe report did not indicate that anything is wrong with the core business, results did not lend enthusiasm about the stock trading at a premium valuation.
With a $124 bln market cap, the scaled marketing software giant trades at ~26 free cash flow estimates, which is on par with customer relationship management cloud software leader Salesforce (CRM). The stock is largely flat over the last year after rising some 500% over the preceding five-year period as the company successfully transitioned to a software-as-a-service (SaaS) model.
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