Adobe Exceeds Revenue & Profit Estimates for Cloud Services
Adobe Systems Inc. reported financial results for its first quarter fiscal year 2016, which boosted their forecast in sales and profit. Adobe's revenue increased 25 percent year-over-year to approx. $1.38 billion and profited 66 cents a share, even though analysts had projected a profit of 61 cents and revenue of $1.34 billion.
A few years ago, Adobe shifted to the cloud by migrating its business from a software sales model to a cloud-based subscription service. Initially analysts had their doubts about Adobe’s capabilities of delivering on the cloud. In a recent report, results determined the organization made a wise decision and successfully executed the shift.
Al Hilwa, Analyst with IDC, emphasized the company’s success in the transition:
"With so much digitization taking place in content, graphics and Web, Adobe is riding the crest of the digital transformation," Hilwa said. "The company's transition to cloud remains a textbook case study of how to execute on such a challenging shift for desktop software. The company has also shifted its software development process from two-year release cycles to a continuous flow of new functionality.”
Brian Wieser, Senior Research Analyst at Pivotal Research Group, remarked on Adobe's quarter:
“Results were above our expectations, which were themselves above both prior guidance and consensus estimates. We now value the stock at $109 per share on a YE2016 basis, up from $105 previously, and continue to rate it Buy.”
Also, Kirk Adams, an Analysts with Rosenblatt Securities, commented on Creative Cloud momentum:
"I think, it's a culmination of all the execution that these guys have put in place for the last 2-3 years. They have very good momentum. They have the wind behind them, and they're the ones out there really leading the marketplace."
The Highlights from Q1 Results
Adobe has 4.252 million Creative Cloud (CC) subscribers in total including, the additional 798 thousand net-new CC subscriptions during the quarter.
Over 30% of Creative Cloud subscribers were recorded as new.
The company has seen more than 23 million new Adobe IDs created through its mobile apps.
Over 20 million people made first interaction with the brand on mobile.
Creative Cloud generated record revenue of $733 million, which represents 44% year-over-year growth.
Adobe Marketing Cloud achieved record revenue of $377 million, which represents 21% year-over-year growth.
Document Cloud revenue was $199 million.
Reported strong growth in operating and net income with cash flow from Operations of $498 million.
51 trillion customer data transactions via the Marketing Cloud have been recorded throughout the last year.
Messages from Executives
“Every day, more brands, government agencies and educational institutions globally are choosing to base their digital strategies on Adobe’s content and data platforms,” said Shantanu Narayen, Adobe president and CEO. “Our exceptional performance in Q1 is an indicator of the strong momentum we are seeing across our cloud businesses as we drive the experience economy.”
He also pointed out the explosion in content creation and management:
“There have never been more people creating content. Whether it’s creative professionals, photographers, students or hobbyists creating compelling images, videos, websites, or mobile applications, our opportunity is to provide them with a one-stop shop for all their creative needs.”
“We are pleased to report another record quarter with 25 percent year-over-year revenue growth. Strong Cloud adoption drove record Creative and Marketing Cloud revenue in Q1, and better-than-expected Digital Media ARR," said Mark Garrett, Adobe Executive Vice President and CFO. "Based on our strong Q1 results and business momentum, we are increasing our annual revenue and earnings targets for the year."
The Status Quo in the Market
In early February, a report on business software companies was published by Tableau Software Inc. The key highlight from the report was the sign that consumers slowed downed their purchases due to economic uncertainty. As a result, investors became fairly worried about potentially poor demand for software companies' products and services. However, since Adobe announced its own results, the worries have been put to rest.
It’s not only Adobe, other cloud-based companies such as Salesforce.com Inc. and Workday Inc. published their results demonstrating shares rising and exceeding expectations, while their stocks declined as per the Tableau’s report.
With respect to competitors, Oracle Corp. reported sales for its modern cloud-based services that beat estimates, and its stock has recently hiked 3.8 percent.
Innovations in Adobe Creative Cloud Services
Adobe keeps focusing on product innovation to broaden its audience. Last quarter in video services alone, the company added over 100,000 native 4K video assets to its Adobe Stock library, which is part of their Creative Cloud service. Adobe became a leader in video production, with more than 175 films from the 2016 Sundance Film Festival used Adobe Premiere Pro CC and/or other Creative Cloud tools.
Recently, the company announced the preview release of Adobe Experience Design CC, a design and prototyping product that simplifies and accelerates the UX for designers by delivering new mobile apps and websites. Adobe Experience Design (XD) is currently available as a free download to anyone with an Adobe ID. The company is planning to launch the product as one of the Adobe Creative Cloud services later this year.
Adobe’s Outlook for Q2
Mark Garrett, Executive Vice President and CFO at Adobe, shares the company's second quarter revenue target as a range of $1.365 billion to $1.415 billion dollars. In the Digital Media segment, he also expects to see a revenue growth of approximately $275 million in net new Digital Media ARR throughout Q2. The company is also targeting for Q2, that the share count will be between 506 million to 508 million, with a Q2 GAAP earnings per share range of $0.42 to $0.48, and a Q2 non-GAAP earnings per share range of $0.64 to $0.70.
The President and CEO, Shantanu Narayen, indicates that he hasn’t noticed any issue regarding the macro economy and demand weakness so far, hence he has a strong outlook not only for Q2, but also for the entire year.
In conclusion, Adobe’s year is off to a strong start, with first quarter revenue of $1.38 billion and non-GAAP earnings per share of $0.66. Besides the favorable financial results, strong innovation seems to have continued. It will be exciting to see what innovative tools they come up with next.
If you’re interested in hearing more from our CMS Analysts, tune into the upcoming CMS-Connected Show on March 31st with Stephen Saber and Scott Liewehr, as they will dive into the topic a little deeper of how Adobe’s decision to go all-in with cloud delivery of its products is paying off in terms of revenue and profit growth in the WCM Industry’s Headline News segment.