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Adobe Beats Q1 Targets, But Expects A Coronavirus-Caused Hit In Q2

Adobe Inc. (NASDAQ: ADBE), the marketing software and digital media maker from San Jose, California, announced its first fiscal quarter results late Thursday. The company managed to beat Wall Street's targets, which is good news for the investors. On the o

Benzinga · 03/13/2020 14:27

Adobe Inc. (NASDAQ: ADBE), the marketing software and digital media maker from San Jose, California, announced its first fiscal quarter results late Thursday. The company managed to beat Wall Street's targets, which is good news for the investors. On the other hand, the outlook does not look as bright. Even with the results above the expectations, the ADBE stock continued to drop in the extended trading, due to global situation and trends.

What To Do During This Negative Market Mode?

Suggestions by the expert analysts are to focus on the companies with strong investment plans. This situation may lead to some strategic and financial driven M&As, which will be perfect for companies with strong balance sheets like Adobe, Google (NASDAQ: GOOGL) Microsoft Corporation (NASDAQ: MSFT), International Business Machines Corporation (NYSE: IBM) and Oracle Corporation (NYSE: ORCL).

Q1 Earnings Results

The analysts expected Adobe to make earnings per share of $2.23 and sales of $3.04 billion. Adobe managed to beat those expectations and to achieve sales of $3.09 billion and adjusted earnings per share of $2.27 in Q1. If we compare year-over-year, Adobe's sales went up 19%, while earnings grew more, 33%. The results might have been even better for 7 cents a share if there were no additional cancelation expenses for the company's events like the annual Adobe Summit. An official announcement of the cancelation of the Adobe Summit in Las Vegas was made on March 2nd. The event was scheduled for March 29-April 2, and it will now be held as an online event. The Summit gathered more than 16,000 participants last year, and its focus is on technology related to customer experience management.

Q1 results were the third consequent quarter where Adobe delivered accelerating earnings growth in software-as-a-service provider and cloud computing.

Earnings Guidance For Q2

Adobe expects to make sales of $3.175 billion in its second fiscal quarter, which is lower than the analysts' predictions of $3.22 billion. On the other hand, Adobe's expectation regarding the adjusted earnings per share is $2.35, while the analysts predicted the lower value, $2.33 a share. In the second quarter of the previous year, Adobe achieved sales of $2.74 billion and earnings per share of $1.83.

Outlook

When you have a subscription-based business model like Adobe, revenues and earnings can be treated as quite predictable. Still, the Covid-19 is expected to make some sort of mark on its finances. Some financial defensive mechanisms may be to reduce marketing spending, defer bookings decisions or delay consulting services, but that may have an effect in the after periods. The subscription-based business model, which has proven again in Q1 to provide strong revenues, earnings, and cash flow, will be a good base for the company to cope with the uncertain period ahead.

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