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Adobe On Cloud Nine, May Touch The Moon : Stock To Watch


Our Take on the Stock

We believe that Adobe stock has more room to run, as the company is positioned on an accelerating growth trajectory, with compelling product innovations powered by Artificial Intelligence, and growing subscriptions for Adobe's Creative Cloud, and Experience Cloud platforms. Near-term weakness, if any, should be seen as a buying opportunity. We see at least 25% potential upside in the stock from current levels.

CEO Statement

"Adobe's vision has never been more clear or more relevant - to empower people and businesses to design and deliver amazing digital experiences," said Shantanu Narayen, president and CEO, Adobe, in a mid-October Financial Analyst Briefing. "The FY2018 targets we are providing today include revenue growth of 20 percent and earnings growth of 30 percent, and reflect our continued momentum and leadership."

Preliminary Targets for FY18

*Revenue of approximately $8.7 billion (~20 percent year-over-year growth)
*Digital Media segment revenue of approximately 23% Y-O-Y growth
*Adobe Experience Cloud subscription revenue of approximately 20% Y-O-Y growth
*Adobe Experience Cloud total revenue of approximately 15% Y-O-Y growth
*GAAP earnings per share of approximately $4.40
*Non-GAAP earnings per share of approximately $5.50
*Digital Media Annualized Recurring Revenue ("ARR") of $1 billion of net new ARR
*Adobe Experience Cloud bookings of approximately 20% Y-O-Y growth

AI-powered Cloud clout - Most recent product updates

At its creativity conference - Adobe MAX - Adobe unveiled the next generation of Creative Cloud, powered by Adobe Sensei - Adobe's artificial intelligence and machine learning platform.

*Adobe XD CC for experience design

*Adobe Dimension CC for 2D to 3D compositing

*Character Animator CC for 2D animation

*Adobe Photoshop Lightroom CC, an all-new cloud-based photography service.

Upcoming catalysts

The company is expected to report fourth-quarter results on December 14, after the bell. Adobe stated that it is on track to achieve Q4 revenue of $1.95 billion vs. year-ago $1.61 billion and EPS of $0.86 or $1.15 on an adjusted basis vs. $0.9 a year ago. Analysts are modeling EPS of $1.16 and revenues of $1.95 billion. Investors will be focusing on revision in guidance, if there is any.

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