Creative software provider Adobe Systems (Nasdaq:ADBE) reported fourth quarter results on recently that saw sales top $1 billion for the first time. New software releases continued to boost sales, along with the lucrative subscriber and service revenues that go along with the software product sales. The shares also continue to look appealing given the growth prospects and reasonable earnings multiple.

IN PICTURES: Top 10 Forex Trading Rules

Fourth Quarter Update
Total revenues jumped 33% to $1 billion and exceeded the billion dollar mark for the first time. The top line jumped strongly in all three operating segments, consisting of a 23.9% jump in product sales (82.4% of total quarterly sales), 172% jump in subscription sales (10% of sales), and 53.5% jump in service and support revenues (7.6% of sales).

During the earnings conference call management detailed that Adobe is a "leader in providing solutions that enable customers to create, manage, deliver and optimize digital experiences."

Adobe's product line includes specific products such as Creative Suite 5, Digital Publishing Suite and Flash Player 10.1, and judging by the fourth quarter results, these products continue to resonate with customers that include "creative professionals" such as web developers, graphic designers, photographers and publishers.

Gross profit jumped just over 33% as costs of sales increased more or less in line with the top line increase. Demonstrating the scalability of the software business model, the jump in sales did not require a corresponding increase in operating expenses, which increased only 17.7%. As a result, operating income shot ahead by 86.7% to $286.9 million. Net income reached $268.9 million, or $0.53 per diluted share, which was compared to a loss in last year's fourth quarter. This came in ahead of analyst projections.

Full Year Recap Outlook
Full-year trends were also impressive. Revenue jumped 17% to $3.16 billion, operating income jumped 43.8% to $993.1 million and earnings improved to $1.47 per diluted share.

For the fiscal first quarter, management expects just over $1 billion in sales and earnings between $0.43 and $0.49 per diluted share. For the full year, analysts are projecting sales growth of just under 8% and total sales of just over $4 billion. Expectations currently call for $2.20 in earnings per share.

The Bottom Line
Adobe also detailed during its conference call that it is among the largest providers of cloud-based software as a service, or SaaS for short. Competition is fierce, with Google (Nasdaq:GOOG), Apple (Nasdaq:AAPL), SAP (NYSE:SAP) and even Amazon (Nasdaq:AMZN) trying to muscle in on the space. For now, Adobe remains unique as few have been able to successfully match its creative software capabilities or steal its loyal customer base.

Adobe's forward P/E has increased slightly as the stock is up since the strong earnings report, but at only 12.3 represents a reasonable entry point as Adobe should continue to grow sales and profits at a very healthy clip. (For additional stock analysis, see Is's P/E Ratio Justified?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  2. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  3. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  4. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  5. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  6. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  7. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  8. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  9. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  10. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!