Adobe Outperforms Q2 Expectations on Strong Portfolio Demand

The News: Adobe stock traded higher this past Friday morning after the creative-software company posted better-than-expected results for its fiscal second quarter ended June 4 on Thursday.

For the quarter, Adobe (ticker: ADBE) reported revenue of $3.84 billion, up 23% from a year ago, and ahead of the company’s forecast of $3.72 billion. Non-GAAP profits were $3.03 a share, ahead of the company’s projection of $2.81 a share. Under generally accepted accounting principles, Adobe earned $2.32 a share. Read the full news piece on Barrons.

Analyst Take: Adobe’s 23 percent YoY revenue growth highlighted a strong quarter where the company saw momentum across its two main segments and three main product lines.

For those less familiar with how Adobe splits out its business, the two segments are Digital Media and Digital Experience. Underneath Digital Media is Creative Cloud and Document Cloud. The Digital Experience business is where the company’s marketing cloud offering lives.

In the company’s earnings release it provided a series of key highlights for the past quarter as follows:

Digital Media Segment – Creative Cloud Highlights:

• Achieved revenue of $2.32 billion, which represents year-over-year growth of 24%
• Net new Creative Cloud Annualized Recurring Revenue (ARR) of $405 million
• New product innovations were unveiled for Lightroom, Photoshop and Illustrator and next week, we’ll announce innovations for Substance to improve the 3D creation process
• Increasing engagement and retention across offerings
• Strong customer acquisition in core creative and emerging categories
• Strong growth for Adobe Stock
• Key customer wins, including ByteDance, Netflix, Microsoft and Unity; and new partnerships including Netflix to give emerging creators access to tools, resources and mentorship, and Khan Academy, designed to provide teachers and students with access to digital tools and learning resources

Digital Media Segment – Document Cloud Highlights:

• Achieved revenue of $469 million, which represents year-over-year growth of 30%
• Net new Document Cloud Annualized Recurring Revenue (ARR) grew to $113 million
• New product innovations included new features in Liquid Mode, Adobe Scan and Sign
• Strong demand for Acrobat
• Accelerated demand for Sign with new customers and an increase in Acrobat users leveraging Sign across desktop, web and mobile
• Explosive growth in Acrobat Web Services
• Key customer wins, included ADP, AstraZeneca, GlaxoSmithKline, Toyota and Wells Fargo

These results are largely self-explanatory, but what stood out to me was the strength in ARR growth, Net New Growth, and Key customer wins.

For the Creative Cloud, 24% ARR growth coupled with net new ARR of more than $405 million represents a strong momentum and demand for the company’s most significant solution by revenue. Key customer wins to include Microsoft and Netflix, among others, stood out as well.

Document Cloud saw a similar set of results, and while the business unit is smaller, the growth at 30% YoY with $113 million in new customer ARR represents a proportionally strong outcome. This group also saw highly reputable wins in pharma, automotive, and financial services. An excellent overall set of results for the digital media segment.

Another area that saw strong momentum around increasing attention to Digital Customer Journey Management and Real-Time Customer Analytics was the Digital Experience Segment. 

Adobe Provided Digital Experience Segment Highlights:

• Achieved revenue of $938 million, which represents year-over-year growth of 21%
• Digital Experience subscription revenue was $817 million, growing 25% year-over-year
• Adobe Summit unveiled innovations across Experience Cloud and drove an unprecedented 20 million views of Summit content from customers around the globe
• Explosive growth for Adobe Experience Platform and associated services like Customer Journey Analytics and Real-time CDP
• Success with large multi-solution deals across geographies, customer segments and product pillars
• Building the future workforce by offering college instructors and students globally free access to Adobe Analytics and related curriculum
• Key customer wins with brands like Nike, NatWest, NTT Docomo and T-Mobile

Digital Experience also saw a robust quarter that included 20%+ growth in both YoY revenue and subscription revenue. I believe the growing importance of delivering real-time full customer life cycle experiences in omnichannel and fully digital shopping journeys is a strong tailwind for Adobe. This momentum is likely to continue into the foreseeable future. Adobe has cemented itself as a category leader in Customer Journey Analytics, and CDP, both of which are high momentum sectors of marketing and business spend to drive ROI on data and analytics investment.

Overall Impressions of Adobe’s Q2 Earnings Results 

This is about as straightforward a good quarter as a good quarter can be. With robust growth across all segments and products, Adobe is on a good trajectory with a foundation built on strong ARR and a who’s who in enterprise customer lists. Moreover, I don’t expect this momentum to change materially in Q3 as Adobe’s growth stems from having the right mix of solutions to deliver to a global customer ecosystem seeking to meet shifting customer demands due to secular trends. 

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. Neither the Author or Futurum Research holds any positions in any companies mentioned in this article. 

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Image Credit: Adobe

The original version of this article was first published on Futurum Research.