Barron’s Hangs a Web 2.0 Buy on Adobe

Weekend financial mag Barron’s uses a Web 2.0 hook this week to hang a buy recommendation on Adobe. The combination of tools, Flash, Flash Lite, Apollo, and growth in 2.0-ish interactive web properties has the publication thinking Adobe looks like a buy at these prices.

For the fiscal year that ends this November, the company is looking for revenue growth of 15%, which would mean about $2.96 billion, up from $2.6 billion in ’06. Margins are expected to come in at around 37%, a major leap forward after the downturn last year that followed the Macromedia deal.

Do the math and Adobe appears to be looking for earnings of about $1.44 a share, up 17% from last year. But that estimate, as well as the higher consensus target of just under $1.50, is probably too low. Demand for the updated software should remain brisk; surveys show that more than two-thirds of those using CS2 plan to upgrade, half of those within three months. And given the strong pricing, sales could come in half-a-billion or more above Street hopes.

The upshot: Earnings could approach $1.60 this year, up about 30% from last year. That makes the high P/E ratio far more palatable. And earnings could climb to $1.80 next year.

While this is an old story to readers of this site, and I’m far less optimistic about Apollo than is Barron’s, it’s a general thesis I buy into.

Related posts:

  1. Making the Bull Case for Adobe?
  2. Cantering about Macromedia/Adobe
  3. Bearish on Google Interest Income
  4. Yahoo Earnings Watch
  5. Yahoo Results: Light or Not?

Comments

  1. I’m far less optimistic about Apollo than you. Mostly because I was a Macromedia Director programmer for four years.
    Remember Director? It integrated Flash and Quicktime. It had these things called Xtras and somebody even made an Xtra that showed PDF files. You could run Director apps on the web (Shockwave) or on the desktop (projectors).
    So if Macromedia didn’t figure it out eight years ago when they already had it, how is Adobe going to figure it out by buying Macromedia? Or maybe ADOBE did. Too bad Macromedia didn’t think of it, oops, I mean ACT on it first. (Remember ACT?)

  2. Thanks Matthew. We’re apparently racing each other to the bottom in our Apollo expectations :-)

  3. I win.
    I quit the Direct-L mailing list about a year ago. When they announced Apollo. :)