On Thursday, Adobe (ADBE) put up better-than-expected fiscal first-quarter performance and issued a strong outlook, while Oracle’s (ORCL) fiscal third-quarter results faced currency challenges and its forward guidance came in about as expected.
Adobe achieved revenue of $1 billion, at the high end of the targeted range (and above consensus), and exited the fiscal first quarter with an impressive 1.84 million paid Creative Cloud subscriptions, an increase of 405,000 on a sequential basis. Adobe Marketing Cloud quarterly revenue jumped 24% during the period, to $267 million, a nice showing. Diluted earnings per share on a non-GAAP basis came in at $0.30, beating the consensus figure by $0.05. The fiscal first-quarter results were solid, but the company’s outlook was even better. Adobe expects fiscal second-quarter revenue in the range of $1-$1.05 billion and earnings per share in the range of $0.26-$0.32, the midpoint of both measures materially higher than consensus. Needless to say, we like Adobe’s fundamental momentum, but shares are presently trading at the high end of the expected fair value range.
Oracle, on the other hand, posted disappointing fiscal third-quarter results. Revenue advanced 4% thanks to new software licenses and cloud subscription revenue, while non-GAAP operating income increased 5%, to $4.4 billion. Non-GAAP earnings per share increased 5%, to $0.68, while reported operating cash flow on a trailing twelve-month basis increased 10%, to $15 billion. Adjusted for the impact of the US dollar strengthening and excluding Venezuela’s exchange loss impact, however, the numbers look a bit better (GAAP and non-GAAP earnings per share would have been up 12% and 8%, respectively). The company’s fiscal fourth-quarter outlook was in-line with consensus expectations. Revenue growth of 3%-7% for the fiscal fourth quarter compares to 5% consensus and earnings per share in the range of $0.92-$0.99 compares to the consensus estimate of $0.96 per share. On the basis of our fair value estimate, Oracle’s shares have more upside potential than Adobe’s, in our view.
Valuentum’s Take
Neither Adobe nor Oracle can be viewed as income ideas, with the former not paying a dividend and the latter only registering a 1.3% annual yield at last mark. Adobe is operating much more seamlessly on a fundamental level than Oracle, but from a valuation standpoint Oracle has more upside. Please see both firms’ respective 16-page reports for valuation information. Microsoft remains our favorite dividend-growth idea in software, though its fantastic capital appreciation as of late has pushed its annual yield below 3%. We’re thinking that Microsoft will engage in a rather large dividend increase shortly to appease dividend growth investors. Our best ideas are included in the Best Ideas portfolio and Dividend Growth portfolio.