Fiscal 1Q16 Results Accelerated Adobe’s Stock Rise in 2016

So far in the series, we discussed Adobe’s (ADBE) recently announced fiscal 1Q16 results. We also discussed how the company’s operating segments performed and other factors that contributed to its continued improved performance in 1Q16.

The increased contribution of subscriptions towards Adobe’s overall revenue indicated the company’s successful switch to a web-based subscription model from traditional licensed software. This transition benefited Adobe’s stock. It rose more than 7% on March 17, 2015, when the company announced its fiscal 1Q16 results.

Adobe’s stock has risen by 13% in 2016 to date. Adobe’s stock had a successful run in 2015 as the subscription business model led to more predictable recurring revenue.

FireEye (FEYE), Fortinet (FTNT), Palo Alto Networks (PANW), and Salesforce (CRM) are some leading players in the technology space. The majority of their revenues are recurring.

A sustained increase in cloud momentum helped Adobe beat analysts’ expectations with its fiscal 1Q16 results. The company reported better-than-expected growth in its Digital Media annualized recurring revenue, Creative Cloud, and Marketing Cloud revenue. Adobe also raised its guidance for fiscal 2016.

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For fiscal 2Q16, Adobe expects its revenue and EPS to be $1.37 billion–$1.42 billion and $0.64–$0.70, respectively. Adobe intends to finish fiscal 2016 with ~$5.8 billion and $2.80 in revenue and EPS, respectively. Analysts’ expected Adobe to post $1.39 billion and $0.65 in revenue and EPS, respectively, in fiscal 2Q16. For fiscal 2016, analysts’ expectations were $5.74 billion and $2.76 in revenue and EPS, respectively.

You can consider investing in the Technology Select Sector SPDR Fund (XLK) to gain exposure to Adobe. It accounts for 1.1% of QQQ. This ETF invests ~38% of its holdings in application software.