Adobe Could Have A Big Second Half

• Shares of Adobe Systems Incorporated ADBE have risen 11.57 percent year-to-date.
• Morgan Stanley’s Keith Weiss has maintained an Equal-weight rating and price target of $80 on the company.
• Weiss believes that there is an “attractive setup” for the company into the second half of the year and that the stock currently offers a balanced risk/reward.

Field checks suggests that the company is witnessing quarter-on-quarter growth in CC subscriptions. According to the Morgan Stanley report, “Resellers characterized Q3 as a better quarter vs Q2, due to typical seasonality as well as promotional pricing of CC Teams.”

In addition, the Education segment appears to be witnessing better than usual results in Q3, again due to discounts. “Customers are continuing to come off of promotional two-year price locks to full list pricing without pushback, which we think speaks to the value of the products,” Weiss reported.

While Adobe’s partners have indicated that their user base has been showing a lot of interest in Adobe Stock, Weiss believes that given that the product was just launched a mere three months ago, it might take some time for adoption to ramp, which is likely in 2016.

Weiss expects the company to report its Q3 revenue in line with the consensus, although there could be upside to the EPS and operating margin expectations, with the management continuing to exercise cost control.

In the Digital Media segment, revenue is expected to rise 27 percent year-on-year, with a $23 million benefit from the acquisition of Fotofolia. The Digital Marketing segment is expected to see a 14.4 percent rise in revenue in Q3, higher that historical seasonality.

“Lastly, our checks pointed to a potential benefit to ARR in Q4 as a large number of customers are expected to come off promotional pricing and onto full list prices,” the report added.