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Summary

  • Adobe's earnings have stalled over the past year as the company has not posted year-over-year earnings or sales growth in any of the previous six quarters.
  • The slump in Adobe's earnings comes as the company is undergoing a transition from traditional perpetual software licenses to a subscription-based business model.
  • Abode ended last quarter with 1.8 million subscribers and management expects to add another 1.2 million by the end of calendar 2014.

Adobe Systems Inc. (NASDAQ:ADBE) is set to report FQ2 2014 earnings after the market closes on Tuesday, June 17th. Adobe is a U.S. multinational software company known for its multimedia and creative software products. Adobe's earnings have stalled over the past year as the company has not posted year-over-year earnings or sales growth in any of the previous six quarters. The slump in Adobe's earnings comes as the company is undergoing a transition from traditional perpetual software licenses to a subscription based business model.

Abode ended last quarter with 1.8 million subscribers and management expects to add another 1.2 million by the end of calendar 2014. Last quarter Adobe added 405,000 subscribers, so management's goal is aggressive, but not outside the realm of possibility. Wall Street is looking for 29 cents per share in earnings and revenue of $1.025B. The Street is hoping that for the first time in seven quarters Adobe will report year-over-year revenue growth on Tuesday. Here's what investors are expecting after the close.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

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(Click Here to see Estimates and Interactive Features for Adobe)

The current Wall Street consensus expectation is for Adobe to report 29 cents EPS and $1.025B revenue while the current Estimize.com consensus from 11 Buy Side and Independent contributing analysts is 31 cents EPS and $1.035B in revenue. This quarter the buy side as represented by the Estimize.com community is expecting Adobe to beat the Wall Street consensus on both the top and bottom line by a thin margin.

Over the previous six quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Adobe's EPS and revenue 5 and 3 times, respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non-professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Here we are seeing a larger than usual differential between the two groups' expectations.

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The distribution of earnings estimates published by analysts on the Estimize.com platform range from 30 cents to 32 cents per share and from $1.029B to $1.050B in revenues. This quarter we're seeing a narrow range of estimates on Adobe's earnings.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrow range of estimates signals more agreement in the market, which could mean less volatility post earnings.

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Over the past three months Wall Street increased its EPS consensus from 26 cents to 29 cents while the Estimize consensus edged higher from 30 cents to 31 cents . Meanwhile the Wall Street revenue forecast rose from $988.03M to $1.025B while the Estimize sales consensus began the period at $1.034B and rose going into the report from a low before reaching $1.035B. Timeliness is correlated with accuracy and upward analyst revisions going into an earnings report are often a bullish indicator.

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The analyst with the highest estimate confidence rating this quarter is turbinecity who projects 30 cents EPS and $1.029B in revenue. turbinecity was our Winter 2014 season winner and is ranked second overall among more than 4,500 contributing analysts. This season turbinecity has been more accurate than Wall Street in forecasting EPS and revenue 60% and 50% of the time respectively throughout a massive 1,153 estimates.

Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case turbinecity is expecting Adobe to edge past the Wall Street consensus, but come up short of the forecast from Estimize.

Adobe is still going through growing pains associated with its transition to a subscription based business model, but contributing analysts on the Estimize.com platform are anticipating that Adobe will add subs faster than the Street is predicting. The Estimize community is forecasting that on Tuesday afternoon Adobe will beat the Wall Street earnings consensus by 2 cents per share and outperform the Street's revenue projection by $10 million.

Disclosure: None.

Source: Will New Subscribers Boost Adobe's Earnings?