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A Look at Adobe’s Strategies to Grow Revenues

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Adobe’s double-digit growth story is likely to continue in fiscal 3Q16

Adobe (ADBE) is the latest company in the tech sector to schedule its fiscal 3Q16 earnings for September 2016. Analysts expect Adobe to post revenues and non-GAAP[1. generally accepted accounting principles] EPS (earnings per share) of ~$1.5 billion and $0.72, respectively, on September 20, 2016, when the company is scheduled to report its fiscal 3Q16 earnings.

In fiscal 2Q16, Adobe’s revenue and EPS of $1.4 billion and $0.71 grew 20% and 65.5%, respectively, on a YoY (year-over-year) basis, respectively. Fiscal 2Q16 marked the ninth consecutive quarter of revenue growth for Adobe. If Adobe manages to repeat its past performance of previous quarters, fiscal 3Q16 will mark ten straight quarters of revenue growth for the company.

Unlike its peers Oracle (ORCL) and IBM (IBM), Adobe’s transition toward the subscription model has allowed the company to report continued revenue growth. Oracle is set to announce its fiscal 1Q17 earnings on September 15, 2016.

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Increased subscriptions allowed Adobe to report revenue growth

The above graph shows the contribution of subscriptions toward Adobe’s (ADBE) overall revenue in fiscal 2Q16. The contribution of subscriptions toward overall revenues rose to 77% compared to ~67% in fiscal 2Q15. Adobe stated that 81% of its revenue in fiscal 2Q16 was recurring.

Adobe’s subscription growth caused its deferred revenue balance to increase 37% on a YoY basis to $1.7 billion in 2Q16. Adobe’s subscriptions include software, selected services for file sharing and publishing, and access to Apple (AAPL) iOS and Google (GOOG) (GOOGL) Android apps.

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