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Why Adobe Stock Climbed 12.6% in June

By Keith Noonan – Updated Jul 5, 2020 at 2:06PM

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Strong business performance has helped the software company's stock rise roughly 33.5% this year.

What happened

Shares of Adobe Systems (ADBE -1.12%) gained 12.6% in June, according to data from S&P Global Market Intelligence. The software stock benefited from momentum for the broader market and got a significant boost after the company published better-than-expected second-quarter results. 

^SPX Chart

Image source: YCharts.

Adobe released its second-quarter results on June 11 and delivered earnings that came in significantly ahead of the market's expectations. The company posted non-GAAP (adjusted) earnings per share of $2.45 for the period on sales of $3.13 billion, while the average analyst target had called for per-share earnings of $2.33 on revenue of $3.16 billion.

A man looking at graphic design software on a computer.

Image source: Getty Images.

So what

Adobe's second-quarter earnings beat was driven by strong demand for the company's subscription-based software products. The business achieved record annual recurring revenue, and growth for its cloud and subscription software offerings helped the company achieve higher gross margins and beat earnings targets despite achieving sales that were slightly lower than analysts anticipated. 

Adobe's portfolio of industry-leading graphic design and media-creation software (which includes Photoshop, After Effects, and Illustrator) and platforms for online retail and digital marketing puts in the business in good position to benefit from the continued growth of digital commerce.

Now what

Adobe Systems stock has continued to climb early in July's trading, with shares up roughly 1.8% in the month so far.  

ADBE Chart

Image source: YCharts.

Adobe is guiding for third-quarter sales of approximately $3.15 billion, representing roughly 11% growth year over year. Adjusted earnings per share of approximately $2.40, up from per-share earnings of $2.05 in the prior-year quarter.

The company's digital media segment is projected to grow roughly 16% year over year, and its digital experience segment is projected to be roughly flat compared to the prior-year period. However, management expects that subscription-based revenue for the digital experience segment will climb roughly 5% in the quarter.

Adobe has a market capitalization of roughly $212.5 billion and is valued at roughly 45 times this year's expected earnings.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe Systems. The Motley Fool has a disclosure policy.

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