But first, the reason why ADBE is back in the news today is because it outlined its growth strategy and growth potential while providing guidance for 4Q18 and FY19 at its Adobe MAX event last night. This update has had the stock popping by up to 8.1% at highs in early trading. With regards to its guidance, Adobe reaffirmed its Q4 EPS outlook of $1.87 versus the $1.89 consensus on revenue of $2.42 bln versus the $2.43 bln consensus. Adobe also issued its first projections for FY19, forecasting revenue growth of 20%, equating to approximately $10.79 bln versus the $10.73 bln expectation.
However, it's important to note that this guidance does not include any contributions from the acquisition of Marketo, which is on schedule to close in Q4. To put Marketo's potential impact into perspective, last year the company generated revenue of $320 mln and is expecting growth of greater than 20% this year, with improving operating margins. Assuming Marketo does indeed generate top-line growth of 20%, that would drive FY19 revenue –significantly further still ahead of current consensus expectations, which do not seem to be including any contribution from Marketo next year.
While the financial effects of the acquisition look positive for ADBE, so too do the strategic implications. Most importantly, it provides ADBE with a significant presence in the B2B marketing environment, especially in the mid-sized business market, expanding its total addressable market (TAM). Marketo's software combines planning, engagement, and measurement capabilities into an integrated B2B marketing platform. The acquisition will also allow ADBE to better compete against companies like Salesforce (CRM), which also made a key acquisition in the B2B marketing space with its purchase of ExactTarget a few years ago.
On the topic of ADBE's total addressable market, during its presentation last night the company said that it sees expansion from $83 bln in 2020 to $108 bln by 2021. In addition to the Marketo acquisition, a few other factors and trends are pushing Adobe’s TAM higher.
For instance, the company is launching new capabilities across its core Creative Cloud platform that will include voice and touch capabilities, as well as emerging media types like 3D and augmented reality, previewed at Adobe MAX yesterday in the form of Project Aero, Adobe’s new cross-device AR authoring tool. ADBE is particularly excited about its growth potential in video, calling it an "explosive category" during its Q3 conference call. In order to capitalize on this rapidly growing modality, ADBE is launching a new product now known as Premiere Rush CC, a video editing app that makes creating and sharing online content easier and more efficient. The company also yesterday announced a collaboration with GoPro (GPRO) that will augment the video catalog available to users of the Adobe Stock marketplace with thousands of clips worth of curated GoPro footage, now available for licensing and import directly from Adobe’s Creative Cloud. This collaboration supports Adobe’s commitment to strengthening the video category for visual developers.
Also, ADBE is making significant advancements in its Document Cloud segment, including by providing updates to its main Acrobat product. Management stated that the updates will thoroughly bolster Acrobat’s capabilities concerning PDFs on mobile devices.
To conclude, ADBE has a number of intriguing growth catalysts ahead, both through organic and in-organic means. The future looks bright for the company from a growth perspective. With a forward P/E north of 30x, it will need to connect on a majority of these growth drivers in order to maintain the stock's impressive performance.