Adobe Inc. (ADBE) shares were down in early trading Friday despite a strong earnings release as unanticipated charges from acquisitions provided a drag on earnings per share and guidance.
The company reported earnings per share of $1.83 for its fiscal fourth quarter against analyst estimates of $1.88 when accounting for acquisition costs, and posted record revenue of $2.46 billion.
Shares of the San Jose-based cloud king were down about $14, or 5.5%, after the opening bell as the company felt the drag of its $4.75 billion acquisition of marketing software company Marketo and lingering headwinds on margin and earnings from its $1.68 billion buyout of e-commerce player Magento.
"We maintain our Market Perform rating on Adobe Systems, Inc. after the company reported strong top-line results for the fourth quarter with 23% year-over-year revenue growth, but missed the consensus non-GAAP EPS due to the impact of the Marketo acquisition, which closed on October 31," JMP Securities analyst Patrick Walravens wrote. "[The acquisition] had not been accounted for in most analysts' estimates or in management's guidance - leaving the stock down."
Guidance for 2019 earnings per share was charted conservatively, at $7.75 compared to a $7.97 analyst consensus, due to foreign exchange headwinds and the aforementioned acquisition costs.
"What we tried to do is reflect that, while we continue to be excited about the potential of earnings, once you factor in the accounting impact of purchase accounting that's approximately $75 million for Magento and Marketo, primarily in the first half of the year, that's like a $0.15 impact in non-GAAP earnings," Adobe CEO Shantanu Narayen said.
If the acquisition costs of Marketo and Magento are taken out of the numbers, Adobe exceeded all expectations. If removed from the estimates, earnings per share would have come in at $1.90, besting estimates alongside the record revenue results.
As such, the acquisitions become an easy scapegoat for the stock's slide on Friday.
Narayen highlighted his confidence in the acquisitions as jewels added to the company's cloud crown on Mad Money with Jim Cramer after the earnings release.
"When you think about Marketo and what it does with respect to B2B, we're now the only comprehensive platform that can help every single enterprise whether its high-volume email campaigns, personalization across all channels, and driving, basically, from leads to revenue across B2B and B2C," Narayen told Cramer.
The Adobe CEO added that the Marketo acquisition in particular will aid the company in driving more than $11 billion in revenue in 2019, even as many fear a slowdown in tech stocks.
"We're excited to add Marketo and the expanded market opportunity it provides," Narayen said. "We look forward to delivering strong revenue growth, accelerating earnings growth and healthy margin expansion during fiscal 2019."