For various reasons, there will be several things to monitor in the weeks ahead for Adobe (NASDAQ:ADBE) as well as both Intel (NASDAQ:INTC) and IBM (NYSE:IBM), the latter two of which will release critical quarterly earnings news soon.
Adobe is an intriguing stock to watch because it's trading at such high levels, seemingly bumping up against 52-week highs daily...until its recently released third-quarter results. Intel and IBM are mired in slumps as each continues to transform its businesses, and with earnings on deck, there are several areas that will determine how 2017 shakes out.
Good news, bad news
On a positive note, Adobe again knocked its recent quarter out of the park with record revenue of $1.86 billion, an impressive 26% jump. CEO Shantanu Narayen's shift to an annual recurring revenue emphasis (ARR) also performed admirably as Adobe exited the quarter with a trailing-12-month run-rate of $4.87 billion.
Adobe's subscription sales, which drives its ARR, soared 34% to $1.57 billion, more than making up for the slight drop in product revenue to $149 million. However, there were a couple of head-scratching items. The shift to an ARR business model should keep overhead down relative to Adobe's sky-high revenue gains. However, last quarter cost of revenue climbed 30% to $263 million, and operating expense also rose, though only a modest 16% to $1.03 billion.
But Adobe's spending, though a tad higher, wasn't the impetus for what has become a nearly 5% drop in stock price in early trading the day after earnings. Is that simply short-term investors taking profits -- its stock is up nearly 50% this year, so there are profits to be had -- or the beginning of a longer-term trend? The next few weeks will determine what Adobe shareholders can expect for the rest of 2017.
A return to growth?
When Intel reports third-quarter earnings on or around Oct. 16, its top line will take a backseat to how it's performing in what are becoming its core markets: data centers, the Internet of Things (IoT), and memory solutions.
Last quarter's record revenue of $14.8 billion didn't impress investors, largely because Intel is a self-proclaimed "data center" provider, yet the $4.4 billion reported was just a 9% rise year over year; only slightly better than the prior quarter. To its credit, Intel's IoT efforts, which include gadgets, artificial intelligence (AI), and smart cars, did improve 26% to $720 million, and memory sales climbed 58% to $874 million.
It will be worth watching not only investor sentiment leading up to Intel's earnings release, but also whether it can maintain significant growth in IoT and memory, and return to at least double-digit gains in its all-important data center group. If growth remains relatively stagnant where it matters, the investor malaise Intel has faced will almost certainly continue.
Similar story, different movie
Like Intel, IBM stock has been under pressure for several months after growth of its strategic imperatives initiatives began slowing. Though last quarter's 5% drop in total revenue to $19.3 billion got much of the press, the reason IBM's stock price is down nearly 13% in 2017 is the downward trend of its strategic imperatives, particularly cognitive computing.
Last quarter, IBM boasted a $15.1 billion annual cloud revenue run-rate, fueled by a trailing-12-month cloud service run-rate of $8.8 billion. However, as a group, strategic imperatives grew a mere 5% last quarter, not a good sign with so much riding on IBM's transition to these new markets.
In addition to watching IBM's strategic imperative sales when it shares third-quarter news Oct. 17, it's worth monitoring whether CEO Ginni Rometty's cost-cutting efforts continue to pay dividends. In the first half of 2017, IBM has shaved 11% off of its total expenses to $12.7 billion. If IBM stumbles where it counts, shareholders will take a hit.