NEW DIRECTIONAL CALL PLAYS
Adobe Systems Inc. - ADBE - close: 81.89 change: +0.45
Stop Loss: 78.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.64 million
Entry on July -- at $---.--
Listed on July 14, 2015
Time Frame: Exit PRIOR to earnings in September
New Positions: Yes, see below
ADBE appears to have successfully completed its transition from a traditional pay up front software sales model to a subscription based pay-as-you-go model for its industry leading creative software.
ADBE is in the technology sector. They are part of the software industry. According to the company, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look â€” from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe Creative Cloud software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."
Looking at the last couple of earnings reports ADBE has beaten Wall Street's bottom line estimate. They reported their Q1 report on March 17th. Earnings were up +46% from a year ago to $0.44 per share. It was their best quarterly earnings growth in four years and above analysts' estimates. Revenues were up almost +11% to $1.11 billion.
During the first quarter they added 517,000 customers to their subscription service. While that was up +28% from a year ago it missed expectations.
Jumping to the second quarter ADBE said they added +639,000 new subscribers, which was well above estimates for +575K.
The company announced their Q2 earnings on June 16th. Earnings were up +30% to $0.48 per share, which beat estimates. Revenues hit a record of $1.16 billion, which was in-line with expectations.
Shantanu Narayen, Adobe's president and CEO, commented on the quarter, "Strong execution against our Creative Cloud, Document Cloud and Marketing Cloud businesses drove record revenue. We are accelerating the pace of innovation in our Cloud offerings and are thrilled to be launching our best Creative Cloud release to date, which includes Adobe Stock - our new stock content service." ADBE's executive vice president and CFO, Mark Garrett, said, "With our business model transition largely behind us, the positive financial benefits are now reflected in our P&L. We are driving more profit, earnings per share, cash flow and deferred revenue and unbilled backlog."
Management did lower their Q3 and 2015 forecast on both the top and bottom line. Yet investors seemed to ignore this earnings warning because it was all due to foreign currency exchange headwinds. ADBE is expecting their Adobe Marketing Cloud sales to grow more than +20% year over year.
Mr. Narayen, CEO, mentioned their new Adobe Stock service. This is a multimedia marketplace where users can buy and sell images.
Analysts think this could add a significant revenue boost by 2017 (up to $1 billion a year).
Multiple analysts have upgraded their price target on ADBE since its earnings report. The most recent was on July 6th where ADBE garnered a new price target at $103.00. Currently the point & figure chart is only forecasting at $92.00 target.
Shares of ADBE broke out past major resistance near $80.00 in mid June. Then the market reversed lower in the last several days of June and shares of ADBE sank back toward prior resistance and now new support in the $80.00 region. The intraday low was $78.94 on July 7th where ADBE bounced off technical support at its rising 50-dma.
Investors have started buying the dip again and this bounce from support near $80.00 is a bullish entry point. We are suggesting a trigger to buy calls at $82.50.
Trigger @ $82.50
- Suggested Positions -
Buy the OCT $85 CALL (ADBE151016C85) current ask $2.69
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike