Cloud-Based Products Continue to Drive Adobe’s Results
Author: Lindsey Yonish, Published: June 21, 2016 at 9:55pm, Category: Earnings Review
Adobe Systems Inc. (NASDAQ: ADBE) had another record-breaking quarter with its 2Q16 earnings release: The company announced total revenue of $1.40B, representing 20% YoY growth. While revenue was in-line with consensus, non-GAAP EPS of $0.71 beat estimates by $0.03. Once again, the focus was on Adobe’s Digital Media segment, which exceeded customer retention targets to notch strong growth in segment ARR, or annualized recurring revenue. Overall, Digital Media revenue grew 26% YoY to a record $943M. Adobe attributed this outperformance to strong demand for its Creative Cloud and Document Cloud offerings across all market channels and geographies.
The company also booked record Marketing Cloud revenue of $385M, solidifying its leadership in the marketing Software-as-a-Service (SaaS) space. Other highlights in its Digital Marketing segment this quarter include the completion of its acquisition of Livefyre and new customer relationships with the NFL, eBay, and FedEx, among others.
Other highlights from the 2Q16 earnings release include the following:
Management reaffirmed full year 2016 guidance and gave the following outlook for 3Q16:
The negative market reaction following the earnings release was most likely the lack of a boost in management’s full year outlook. It should be noted that Adobe’s new subscription-based model makes revenues more predictable and, therefore, top-line outperformance will be limited in the future.
In recognition of 2Q16 results, we made the following change to our Adobe earnings model:
Digital Marketing revenue: Marketing Cloud YoY revenue growth in 3Q16 revised down to 7% to account for a drop-off in ARR following a strong beat in the last quarter (18% in 2Q16). Total growth for this segment is still expected to be around 20%.
The company also booked record Marketing Cloud revenue of $385M, solidifying its leadership in the marketing Software-as-a-Service (SaaS) space. Other highlights in its Digital Marketing segment this quarter include the completion of its acquisition of Livefyre and new customer relationships with the NFL, eBay, and FedEx, among others.
Other highlights from the 2Q16 earnings release include the following:
- Creative revenue (included in the Digital Media segment) grew 37% YoY to $755M
- Operating income grew 78% YoY and net income grew 66% YoY, both on a GAAP basis
Management reaffirmed full year 2016 guidance and gave the following outlook for 3Q16:
- Total revenue of $1.42B to $1.47B
- Share count of 504M to 506M shares
- GAAP EPS of $0.46 to $0.52 and non-GAAP EPS of $0.69 to $0.75
The negative market reaction following the earnings release was most likely the lack of a boost in management’s full year outlook. It should be noted that Adobe’s new subscription-based model makes revenues more predictable and, therefore, top-line outperformance will be limited in the future.
In recognition of 2Q16 results, we made the following change to our Adobe earnings model:
Digital Marketing revenue: Marketing Cloud YoY revenue growth in 3Q16 revised down to 7% to account for a drop-off in ARR following a strong beat in the last quarter (18% in 2Q16). Total growth for this segment is still expected to be around 20%.
Source: Management’s guidance from the 2Q16 earnings call.
The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions. Click here to Visit Lindsey's contributor page.
The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions. Click here to Visit Lindsey's contributor page.
