Adobe Shares Plummet 23% After Reporting Disappointing Q4 Results

Strategic Insights -

Adobe Systems Inc. announced a significant loss for the fiscal fourth quarter, with operating income that fell short of Wall Street analysts' expectations. This announcement, made after the stock market closed, caused Adobe's share price to plummet $13.50 to $45. The company's decision to aggressively acquire publishing companies and establish its technology in the emerging market for Internet publishing tools has led to high operating expenses, said John Rossi, an analyst with Robertson, Stephens & Company. "Operating expenses were very high, brought on by these layered acquisitions," he said. "There were several negative surprises, with very little warning, and here we have a quarter that is way off the mark."

Key Takeaways:

  • Adobe shares dropped 23% in after-hours trading after reporting a loss for the fiscal fourth quarter.
  • The company's operating income was below Wall Street analysts' expectations, with a net loss of $11.8 million.
  • Adobe's share price plummeted $13.50 to $45 after the announcement.
  • The company's high operating expenses were caused by layered acquisitions, according to John Rossi, an analyst with Robertson, Stephens & Company.
  • Adobe's revenue for the fourth quarter of 1995 was $200.9 million, an increase of 7% from $187.6 million a year earlier.
  • The company reported a loss of $45.2 million in the fourth quarter of 1994, which included charges and write-offs of $84.6 million.
  • John Warnock, Adobe's chairman and chief executive, stated that the company intends to correct its operating margins and bring them in line with its business objectives.
  • Microdyne and FTP Software Inc. also reported disappointing results, with their shares plummeting 54% and 55% respectively in Nasdaq trading.

Statistics:

  • Adobe shares dropped from $58.50 to $45, a 23% decline, after the announcement.
  • The company's net loss was $11.8 million for the quarter, reflecting a charge of $31.5 million associated with the acquisition of Frame Technology Corporation.
  • Revenue for the fourth quarter of 1995 was $200.9 million, an increase of 7% from $187.6 million a year earlier.
  • Adobe's operating expenses were higher than the company's targets, with expenses as a percentage of sales higher than expected.
  • John Rossi estimated that Adobe would need another six months to rationalize its acquisitions.

Sources:

  • "Adobe Systems Inc. tumbled 23 percent in after-hours trading" (No specified source)
  • John Rossi, an analyst with Robertson, Stephens & Company, as quoted in the article.
  • John Warnock, Adobe's chairman and chief executive, as quoted in the article.
  • "Table: 'Adobe Systems Inc. (AD-BE,NNM) Qtr. to Dec 1 1995 1994 %Ch Rev. 200,876,000 187,649,000 +7 Net loss b11,790,000 c45,157,000 Sh. earn (.16) (.65) Sh. out. 72,477,000 69,076,000 Yr rev. 762,339,000 675,617,000 +12.8 Net inc. b93,485,000 c15,337,000 +510 Sh. earn 1.26 .22 Sh. out. 74,253,000 70,169,000 b-Included write-off of $14,983,000 in conjunction with the purchase of Ceneca Communications, and merger transaction and restructuring costs of $31,534,000 associated with the acquisition of Frame Technology Corp., both in the quarter and year. Excluding the charges and the company's Freehand and Photostyler businesses, income was $135.6 million, or $1.80 a share, in the year. c-Included write-off of $12,424,000 in the quarter and $15,469,000 in the year, in connection with the purchase of Laser Tools Corp. and costs of $72,183,000 associated with the acquisition of Aldus, in both periods. Excluding the charges and the Freehand and Photostyler businesses, income was $75.9 million, or $1.07 a share, in the year. (Loss) Revenue is total revenue. The year-earlier periods ended Nov. 25. The results for the year included the effect of the acquisition of Frame Technology, and all comparative data included the Frame data for prior periods as well as the latest-year periods. Yesterday's closing price: $58.50 Down $1.875" (No specified source)