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Analysts defend Adobe's guidance; shares close down 5.3%

Oct. 07, 2015 6:14 PM ETAdobe Inc. (ADBE) StockADBEBy: Eric Jhonsa, SA News Editor
  • Adobe (NASDAQ:ADBE) narrowed the initial after-hours losses seen yesterday after the imaging/media software giant provided below-consensus FY16 sales and EPS guidance ahead of an analyst meeting, but nonetheless closed down sharply. Prior to the outlook, Adobe was barely $2 removed from a high of $87.25.
  • Several analysts argued Adobe's top-line guidance isn't much to be worried about, given forex pressures, the impact of the cloud/subscription transition, and the fact Adobe expects strong revenue and ARR growth through FY18. On the other hand, some concerns were aired about Adobe's aggressive spending forecast: It expects 15% FY16 opex growth, and also a 15% opex CAGR through FY18.
  • RBC's Ross MacMillan (Outperform, $100 target): “[I]mplied opex CAGR of ~15% seems high in a historic and absolute dollar context ... the good news is that we think the market will pay for higher growth and it’s clear that margin optimization is still in play for beyond FY18. Mgmt. is clearly more bullish on the opportunity and we think is trying to calibrate expense expectations to the upper boundaries of what might be required to drive growth."
  • Citi's Walter Pritchard (Buy, target cut by $5 to $99): "Long-term guidance suggests 20% top-line growth and 30% EPS growth for FY15-18. We remain slightly above these ranges. As we expect the market to get over impact of FX quickly, the debate that is likely to persist is whether management will grow OpEx at the implied 15%+ rate from FY15-18 ...  we note that management has never spent to guidance and we expect profitability still holds upside."
  • Wunderlich's Rob Breza (Hold, $90 target) isn't as upbeat. "With approximately 77% of the model transition behind the company, we believe results should be more predictable. However, results continue to disappoint, which will likely have investors pausing. Inconsistent results over the past few quarters combined with a premium valuation and reduced estimates will likely negatively impact near- term performance until a more consistent performance record is established."
  • Analyst meeting slides (.pdf)

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