Adobe Systems Analyst Day: Preview

Adobe Systems Inc. (NASDAQ: ADBE) will host its annual financial analyst meeting in New York at 10 a.m. Eastern time Wednesday.

We expect three things to emerge at this week's Analyst Day: reiteration of fourth quarter guidance (we/Street's estimates are at lower end); an optimistic outlook for Creative Suite 6 given the shift to embrace HTML5, subscriptions and a potential average selling price uplift; and a streamlined message on growth drivers. We also publish a snapshot creative pro survey which we view as incrementally positive, says Ross MacMillan, an analyst at Jefferies.

MacMillan has retained a buy rating on Adobe primarily due to valuation, but he, like many, has wrestled with what could re-accelerate growth on a consistent basis. He expects management to focus on content creation and digital marketing as main drivers at this week's Analyst Day.

He says Adobe appears to be regaining some confidence in the potential to stimulate better growth in the creative franchise through retooling for open standards/ HTML5, new subscription offerings such as through the Adobe Creative Cloud, and broader adoption of subscription pricing.

MacMillan believes Adobe will reiterate its fiscal fourth quarter guidance. His expectations are at the low end of the range and the Street's estimates are in the lower quartile. Adobe has not missed the low end of guidance for 10 quarters and given demand is holding up, it's possible that the set up is actually decent.

He believes Adobe would talk more positively around the creative franchise given retooling for open standards, new offerings such as the Creative Cloud, the Photoshop opp (two years since the last refresh) and broader subscription pricing efforts.

He believes it's possible that Adobe could drive some price uplift with CS6 given the additional value of retooling for HTML5. He expects Adobe's comments to support Street estimates in fiscal 2012, but he doesn't expect management to endorse the now moot $5 billion revenue target for fiscal 2012.

We recently conducted a small survey of Web-centric creative professionals that use Adobe tools in their daily work. We highlight the points from the survey that we found interesting, says MacMillan.

He says Creative professionals expect their own businesses to grow around 10 percent in calendar 2012 versus calendar 2011 and business has actually improved slightly in recent months. The emergence and use of more open standards appear to have had a neutral impact on Adobe's tool use so far.

For development to mobile platforms such as iOS and Android, native development or open standard cross-platform development (such as PhoneGap, which is now owned by Adobe) are most often used. Adobe tools are only used 12 percent of the time.

MacMillan says 80 percent of the Creative professional respondents believe that there is a shift toward browser-based apps to address compatibility across multiple platforms. This is viewed by 45 percent as positive for Adobe and 30 percent as neutral for Adobe.

He says the view on Adobe's integrated Web experience management (content creation, Web analytics and content management) is viewed as more compelling by 46 percent of respondents.

The brokerage maintains its buy rating on shares of Adobe with a price target of $36. The brokerage also maintains its 2011 EPS estimate of $2.27 on revenue of $4.14 billion and its 2012 estimate of $2.58 on revenue of $4.53 billion.

Adobe Systems stock closed Monday's regular trading up 0.44 percent at $29.92 on the NASDAQ.