Morgan Stanley Looking For Q2 Bounce At Adobe

In a report published Tuesday, Morgan Stanley analyst Keith Weiss maintained an Equal-Weight rating on Adobe Systems Incorporated ADBE, while raising the price target from $70 to $75, despite the company reported mixed 1Q results. Analyst Keith Weiss said that positive field checks have indicated an improvement in 2Q subs and ARR. However, these are already reflected in the 2Q estimates. "Our checks with Adobe partners highlighted strong QoQ growth in seats, as budgets remain healthy and non-CC users continue to migrate over. Since Adobe changed reseller quotas in Q1 from seats to revenue, resellers are starting to do well as customers come off of promotional pricing and start to pay full list prices," Weiss wrote. Adobe's total ARR growth is expected to rebound from 7 percent in Q1 toward our 11 percent. Morgan Stanley's Q2 revenue estimate of $1.167B reflects 9.3 percent y/y growth and is broadly in-line with consensus expectations and company guidance. Weiss expects Adobe to achieve sequentially higher net subs adds and ARR through FY15, although these are reflected in the estimates and also reflect a mix of tailwinds and headwinds. "…we believe Adobe is setting up for a strong Q3, with education providing incremental subs and ARR after CLP (perpetual) pricing was phased out in February and combining with 60% discounts for individual teacher/student additions going into back-to-school shopping," the report added.