Adobe Systems (ADBE, Financial) has been a great long-term performer for investors. Despite being in the highly competitive tech industry, the company has maintained its moat and has continued performing well.
The company’s revenue has been increasing in the past seven quarters. In addition to this, in the most recent quarter, the company shared earnings per share of 75 cents, beating the analysts’ estimates by 2 cents. On the other hand, the company’s revenue came in at $1.46 billion, again surpassing the consensus estimate by $10 million. That figure also represents a surge of 19.7% year over year.
The company has experienced robust momentum mainly due to the exploding demand for digital experience. Moreover, sturdy adoption rates in the creative cloud and Document Cloud aided push Digital Media yearly Recurring Revenue to $3.41 billion at the end of the quarter. Apart from this, operating income jumped 78 percent on a year-on-year basis.
In the third quarter, more than 80% of the company’s revenue was of the recurring type, which provides the firm substantial visibility into its imminent operations. However, management has disenchanted the market with its full-year guidance for this year as both earnings as well as revenue estimates came in below analysts’ estimates.
But that’s not a big issue, as the company’s asset-light business model allows it to produce abundant amounts of free cash flow as well as conserve a healthy balance sheet.
On the other hand, Adobe is also poised to gain advantages from the virtual reality (VR) and augmented reality (AR) markets as the company has strategized to make its Autodesk VR and AR enabled. Furthermore, the company is formerly AR and VR ready in both its marketing as well as creative clouds.
Moreover, Adobe has also signed an AR-specific deal with Microsoft (MSFT, Financial) and its HoloLens AR solution to enhance its Autodesk platform. If Adobe’s foray into the AR and VR space is a success, the stock could shoot considerably higher.
For the prior few years, the company has been putting a lot of effort in executing the CEO’s strategic initiative of lashing growth in yearly recurring revenue results, which delivers ongoing fees without depending on new sales, across its multiple businesses.
Summing up
Despite the fact that Adobe’s recent quarter was not that great, the company’s future is strong. The stock is trading close to its 52-week highs, but it could still offer considerable upside to investors who have a long-term investing horizon.
Disclosure: No position in any of the stocks.
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