Adobe (ADBE) reinforced the fact that the big boys still rule the cloud. Although not generally lumped in immediately with cloud names, Adobe is finding success with Document Cloud and Experience Cloud, helping to propel revenue growth to 25% year-over-year in the second quarter. That's still a monster number for a company that reported $2.74 billion in the quarter. This helped it on the way to earnings per share of $1.83, which was a nickel ahead of expectations.
There were concerns that heavier marketing spending and promotions and macro headwinds, but the strong results from the second quarter buried those. Initially, Adobe was trading lower in the after-hours on Tuesday, driven by third-quarter guidance. Management lowered earnings per share expectations to $1.95 vs. current consensus of $2.05 on revenue -- just an eyelash below estimates. Optimism surrounding the fourth quarter, though, combined with a look at history quickly erased the red action and turned it green. Last year, the company had a similar guide down in the third quarter, before it promptly blew away lowered expectations by 9%. In other words, the net result was roughly the same as expectations before the guide lower. The market isn't falling for the same trick again this year.
It's quite probable Adobe's full-year earnings per share will land north of $8. With the current consensus pegged at $7.82, the next two earnings reports may continue to act as a catalyst for the stock. As far as the near-term goes, Adobe bulls may want to keep their excitement in check for the next two to three weeks.
Over the past 10 reports, Adobe stock has moved between 1% and 4% the day after reporting (so, similar to today) in nine of those 10 reports. The issue has been with follow-through. Adobe stock has either faded its first day gain, or been in the red eight times by day 13, post-earnings. Of the five green closes of the last 10 reports, four of those have faded by day 13. Pushing our view out to 21 days, the upside on Adobe has been very limited. It brings into play the idea of selling covered-calls if you are long the stock or selling July 5 $295-$305 bearish call spreads for a trade.
While history may favor the idea of a limited idea, the weekly chart certainly favors the bulls. Wednesday's big move sets the stage for a breakout on the weekly chart this week as long as we don't fade back to the $280-level by Friday. This breakout is similar to the failed breakout in late April, but Adobe stock isn't as overheated this time as it was then. Note how we have a lower StochRSI and Full Stochastics. It is looking more like the last six weeks have been the pause that refreshes.
I'm inclined to follow the charts and the fundamentals here rather than the historical post-earnings reaction. Adobe appears to have a date with the $300-$310 range over the next month as long as we close above $280 this week. I don't see the bears being able to seize control until we trade below $270, so if I were long on the stock that is where I would be looking to protect my position.