Adobe share price down, downbeat Q4 outlook offsets strong Q3 results

Adobe Systems Inc reported on Thursday record revenue and better-than-expected earnings in the third fiscal quarter, which however were overshadowed by a fourth-quarter sales and profit forecast below projections.

The company said that net profit in the three months ended August 28th rose to $174.5 million, or $0.34 per share, from $44.7 million, or $0.09 per share, a year earlier. This was on the back of revenue rising 21% to $1.22 billion, with profit excluding some items at $0.54 per share. This compared to analysts expectations for non-GAAP profit of $0.50 on $1.21 billion in sales.

The company repurchased approximately 1.6 million shares in the third quarter, returning $132 million in cash to shareholders. It hasnt paid dividend since 2005, choosing instead to pass earnings on to investors via buybacks.

In the past three years, Adobe has been switching from traditional licensed software to web-based subscriptions to help attract more predictable recurring revenue. It said on Thursday that digital media annualized recurring revenue, a metric gauging how much it makes from subscriptions, grew to $2.65 billion through the latest period as the company added 684 000 Creative Cloud subscriptions, 44 000 more than expected, to 5.33 million. It also said that recurring revenue had now reached 73% of total sales and revised its forecast for the metric to $2.95 billion for the full year, up from a previous guidance of $2.93 billion.

However, shares of the company slid in extended trading as it projected smaller revenue than expected in the fourth fiscal quarter, revising down its full-year outlook. Adobe pegged Q4 sales at $1.28 billion to $1.33 billion, below analysts $1.36-billion average estimate, while profit is expected between $0.56 and $0.62 per share, trailing projections for $0.64. This translates into full-year revenue of $4.76 billion to $4.81 billion for the year ending in November, down from an earlier projection of $4.85 billion.

The company also announced a leadership shake-up that included the head of the digital-media unit. David Wadhwani, a senior vice president and general manager for digital media who helped drive the cloud transition, will leave on September 25th to pursue a CEO opportunity at another company, which was not named.

Adobe said that Bryan Lamkin, who currently leads the document cloud business, will head the combined digital media. Creative Cloud, which includes Photoshop and Illustrator, is the companys biggest cloud business, with the other two being Marketing Cloud and Document Cloud.

Adobe Systems Inc settled 0.27% lower at $80.31 per share on the NASDAQ on Thursday, marking a 10.47% jump year-to-date and valuing the company at $39.97 billion. Shares slid 2% to $78.68 in after-hours trading. According to CNN Money, the 22 analysts offering 12-month price forecasts for Adobe have a median target of $90.00, with a high estimate of $105.00 and a low estimate of $65.00. The median estimate represents a 12.07% increase from the last price of $80.31.