The earnings season is still thin as we are waiting for the Q1 earnings season to kick off in three weeks. But this week we will get a lot of late Chinese Q4 earnings from many major energy, industrial, and banking firms. For emerging markets and the Chinese equity markets overall, the three most important earnings to watch are Tencent, Xiaomi, and Meituan, that represent the Chinese digitalisation. The list below shows all the 30 most important earnings this week.
Monday: China Resources Beer Holdings, Country Garden Services, Tencent Music Entertainment
Tuesday: Wuxi Biologics Cayman, Haidilao International, People’s Insurance Co Group, Geely Automobile, Adobe, IHS Markit
Wednesday:PetroChina, Xiaomi, ANTA Sports Products, China Mengniu Dairy, Tencent, General Mills, E.ON
Thursday:China Mobile, China Life Insurance, China Evergrande New Energy, Nongfu Spring, CNOOC, Anhui Conch Cement, China CITIC Bank, Country Garden
Friday: China Construction Bank, China Petroleum & Chemical, China Shenhua Energy, Bank of Communications, Longfor Group, Meituan
Adobe: lessons of growth decay and valuation
In this week’s Earnings Watch we will focus on Adobe scheduled to release earnings tomorrow. This is a company that has always been successful and carved out strong niche business delivering software to the creative industry. April 2012 was a transformational year for the company as it released its Adobe Creative Cloud SaaS platform and over time moved more and more customers to the platform. This was the end of on-premise business model and the beginning of a recurring subscription-based business model with more stable revenue and profitability.
The massive increase in predictability of the business is visible in the free cash flow to revenue time series (see chart below. The business model change happened by accident around the same time long-term interest rates began to go down significantly. As we discussed at length with clients this created bond-like valuations of predictable and high-growth assets such as Adobe. The free cash flow yield went from 11% in 2011 to 2% in 2020.