by Ian Harvey
September 18, 2020
Adobe delivered earnings results after the market closed Tuesday which were excellent. Share price rose in after hours by more than $20.00; and at opening Wednesday there was a battle between bears and bulls as to the direction – the bearish bets won out but it seems that the price was manipulated to accommodate – leaves a big question – what do you think?
However, Stock Options Made Easy “Earnings Predictions” Members were up 48.5% before earnings but exited at 38.5% after the report, and before the share price slipped which appears to be a well-manipulated push for a lower price.
Adobe delivered earnings results after the market closed Tuesday that were impressive. Not only did the company exceed expectations, but it kept alive its five-year streak of year-over-year quarterly increases in revenue. And it produced the best fiscal third-quarter results in the company's history, among other things generating record operating cash flow of $1.44 billion.
Adobe delivered stronger-than-expected 3Q results, thanks to the robust demand for cloud-based creative software amid the coronavirus pandemic. The software maker's 3Q adjusted earnings jumped 25% to $2.57 per share year-on-year, and topped analysts’ estimates of $2.41. Its revenues rose 14% to $3.23 billion and also came above the Street consensus of $3.16 billion.
Adobe said sales of the company’s flagship creative segment increased 19% to $1.96 billion, while revenues at its document cloud division grew 22% to $375 million, benefiting from the increase in remote work trends during the pandemic. Adobe’s digital media segment sales advanced 19% to $2.34 billion.
The company projects 4Q sales of $3.35 billion and adjusted earnings of $2.64 per share. Adobe also expects its digital media segment revenue to increase by 18% in the fourth quarter ending in November.
The Bearish Bets…..
On Tuesday, there were two option alerts related to unusually large Adobe trades.
Stock Options Recommended Trade…..
“Earnings Predictions” Members executed a call options trade on Target on Monday, September 14, 2020, and were up potential profits of 48.5% pre-earnings; however, after the market opened Wednesday the potential profit fell to 38.5%, as long as the member sold before the seemingly manipulated trading began.
More profit might be available for those traders that wish to continue to hold as there are still 27 days to go before expiry.
The recommended options trade for “Earnings Predictions” Members.....
** Option trade to consider: Buy the ADBE OCT 16 2020 500.000 CALL at approximately $18.00 (up to $20.00).
The Reasons Behind the Recommended Trade…..
“The digital media and marketing software firm, Adobe Systems Incorporated (NASDAQ:ADBE), will report earnings after the market closes. The consensus earnings estimate is for $2.41 per share on revenue of $3.15 billion; but the Whisper number is a little better at $2.47 per share.
The company's guidance was for earnings of approximately $2.40 per share. Consensus estimates are for year-over-year earnings growth of 12.62% with revenue increasing by 11.15%.
Analysts are looking for earnings-per-share growth of 17% for the quarter, and 24% growth for the full year. Annual growth estimates were recently revised upward.
The cloud software giant has outperformed the tech sector and crushed the Nasdaq in 2020.
Shares of Adobe rose 15.5% during the month of August, according to data from S&P Global Market Intelligence. The creative cloud software giant, home to Adobe Photoshop, Illustrator, Acrobat, and other digital marketing tools, rose along with the rest of the technology sector during a very strong August for the markets in general and tech in particular.
Short interest has decreased by 14.1% and overall earnings estimates have been revised higher since the company's last earnings release.
The company's recurring revenue model, operating leverage (in which income increases more than revenue), and the current low interest rate environment have continued to push Adobe's stock higher.
Adobe’s suite of subscription-based creative and design software from Photoshop to Illustrator are often regarded as nearly irreplaceable by many individuals, businesses, and schools. ADBE’s Creative Cloud offerings can be viewed in a similar light to Microsoft’s Office suite. And this helps provide a strong moat.
ADBE has also expanded its business-focused platforms and solutions for marketing and commerce in recent years, while its PDF and e-signature units remain important. The company topped Q2 estimates, with sales up 14% during the period ended in late May. “The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis,” CEO Shantanu Narayen said in prepared remarks.
Impressive growth in Creative Cloud and Document Cloud business lines is likely to have resulted in strong Digital Media ARR (Annualized Recurring Revenues).
Last quarter, Adobe bought back roughly 2.6 million shares to showcase its strength at a time when the likes of AT&T T and others put a halt to their programs.
As schools have faced physical closure and moved online, the company has been making efforts to provision students at home with Creative Cloud and provide teachers distance learning support, thereby expanding its customer base.
In addition, the company witnessed increased demand for professional video products with strong engagement for Adobe Premiere Pro and After Effects.
DC ARR is expected to have increased driven by solid enterprise adoption of Acrobat and Document Cloud services, as well as strong performance of Adobe Sign.
The ever-increasing demand for data and insights, content and personalization, customer journey management, commerce and advertising should have expanded revenues in the Digital Marketing segment.
The shift to remote work is expected to have further driven a surge in demand for digital documents and increased the use of web-based PDF services and the number of documents shared in Acrobat. This is expected to have driven strong adoption for Adobe Sign, the company’s cloud-based electronic signature solution.
New capabilities in Adobe Target are expected to have further enhanced customer recommendation and targeting, as well as boosted revenues.
Adobe had its target price boosted by Jefferies Financial Group from $470.00 to $570.00 in a report issued last Wednesday. They currently have a buy rating on the software company’s stock.
As well, Adobe had its price target hoisted by Barclays from $450.00 to $530.00 in a research note published last Wednesday. They currently have an overweight rating on the software company’s stock.
ADBE has soared 500% in the past five years to match Amazon and easily outpace the rest of the FAANG stocks—including Apple’s 300% and Netflix’s 400%.
Strong demand for the company’s innovative solutions and products, strength across geographies, along with growing subscription for cloud application are positive points.”
Analyst Show Positivity…..
Just ahead of Adobe’s 3Q numbers, BMO Capital analyst Keith Bachman raised the stock's price target to $535 from $440 and maintained a Buy rating, citing "upside" in 3Q results and November-quarter guidance. He remained bullish on the opportunities for the company's document cloud business.
Bachman, after earnings, then increased the price target from $535 to $560.
BofA Securities analyst Kash Rangan reiterated a Buy rating on Adobe shares with a $570 price target.
Morgan Stanley analyst Keith Weiss maintained an Overweight rating and $560 price target.
Wells Fargo Securities analyst Philip Winslow reiterated an Equal-weight rating and increased the price target from $375 to $500.
Piper Sandler analyst Brent Bracelin maintained an Overweight rating and increased the price target from $430 to $570.
Shareholders should also have been happy with Adobe's fourth-quarter guidance, which includes 18% annual growth in digital media segment revenue. Adobe has done well at overcoming challenges, and its future still looks bright.
So, it appears that the bearish traders were able to manipulate their way to a profit despite the fact that Adobe had an excellent earnings report, as well having the positive backing of several analysts.
Stock Options “Earnings Predictions” members, that missed the boat, still have time for the Adobe share price to increase and profit before expiry!
Do you feel that Adobe share price was manipulated?
Where Is Adobe Share Price Headed Now?
Is It Too Late To Get In On The Action?
Will Adobe Shares Start to Rise Again?
Will We Recommend Another Adobe Trade?
What Other Trades Are We Anticipating?
Do You Wish To Be Part Of This Action?
Join us here at Stock Options Made Easy, and find out our trades moving forward.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!