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Adobe Systems continues steady ascent

3 min read

Adobe Systems moved up another 8 9/16, or 6 percent, to 141 3/16 Monday in an otherwise brutal day of trading for technology stocks.

The Web and desktop publishing software vendor continues to bask in analyst praise following its stellar third-quarter earnings report last week.

Adobe (Nasdaq: ADBE) easily beat the Street estimate when it pocketed $78.3 million, or 61 cents a share, on sales of $328.9 million.

It also set a 2-for-1 stock split.

First Call Corp. consensus expected Adobe to earn 52 cents a share in the quarter.

Last week, Chase H&Q reiterated its "buy" recommendation on the stock and raised its 12-month price target to $130 a share.

The $328.9 million in sales represents a 26 percent improvement from the year-ago quarter when it earned $57.3 million, or 44 cents a share, on sales of $260.9 million.

"The Web is creating explosive demand for content, and our third-quarter results showed that Adobe is in an exceptionally strong position to capitalize on this trend," said CEO John Warnock in a prepared release.

Warnock said Adobe expects fiscal 2001 sales to improve at least 25 percent.

During a conference call with analysts, officials said print product sales fueled the upside surprise, largely due to a new version of its popular Illustrator software.

Although Illustrator is technically part of the company's Print Publishing segment, Adobe's research indicates 66 percent of Illustrator buyers purchased the product to create Web content, company President Bruce Chisen told ZDII.

The entire print publishing unit, which also includes products such as PageMaker desktop publishing, generated revenue of $118.8 million in the third quarter.

Web publishing, including PhotoShop, saw revenue of $118.8 million. Although the newest version of PhotoShop doesn't ship until the end of the month, new unit orders are already better than a year ago, Chisen said.

The ePaper segment, consisting entirely of Acrobat products for distributing documents online, posted revenue of $51.2 million, 47 percent year-over-year growth, Chisen said.

The company recently changed the way Acrobat is licensed to businesses, so large organizations can now license the Acrobat on a per-seat basis, similar to the way corporations buy office application suites or utility software. Acrobat was previously sold only as boxed software packages.

By platform, 63 percent of Adobe's overall sales were for Windows, while 37 percent were fueled by MacOS users.

Company officials said the company is now targeting gross profit margins of 93 percent in the fourth quarter and throughout fiscal 2001. Operating margins are expected to come in around 31 percent.

The 2001 projection comes as an especially pleasant surprise to Wall Street because Adobe in the past has never given targets for the next fiscal year so early, Chisen said.

The 2-for-1 stock split will take effect Oct. 24 for all shareholders of record on Oct. 2.

Last quarter, Adobe beat the Street when it returned a profit of $65.8 million, or 51 cents a share, on sales of $300.1 million.

The stock moved up to a 52-week high of 143 5/16 in July after falling to a low of 52 1/4 last September.

Analysts are expecting the San Jose, Calif. company to earn $2.06 a share in the fiscal year.

Ten of the 12 analysts tracking the stock rate it either a "buy" or "strong buy."