Adobe on Cloud Nine

A few years ago, Adobe (Nasdaq: ADBE) began its shift to the cloud by migrating its business from a software sales model to a cloud-based subscription service one. At the onset, the transition was bumpy and analysts had their doubts on whether or not Adobe would be able to deliver. But Adobe’s recent results are strong proof of a decision well made and well executed.

Adobe’s Financials
Adobe’s first quarter revenues grew an impressive 25% over the year to $1.38 billion, ahead of the market’s projections of $1.336 billion. EPS of $0.66 was also ahead of the Street’s estimated $0.61 per share.

By segment, revenues from the Digital Media segment grew 33% over the year to a record $0.93 billion. Creative segment’s revenues grew 44% to $0.73 billion.

Subscription revenues grew 50% over the year to $1.07 billion and services and support revenues grew 6% to $0.12 billion. Product revenues fell 30% over the year to $0.2 billion.

Cloud is the driving force for Adobe. During the quarter, it continued to see strong Creative Cloud adoption where Digital Media Annualized Recurring Revenue grew by nearly a quarter million to $3.13 billion. Adobe Marketing Cloud also saw an impressive growth in bookings, translating to 21% increase in revenues which grew to $377 million.

For the current quarter, Adobe expects to earn revenues of $1.365 billion-$1.415 billion with an EPS of $0.64-$0.70. The market was looking for revenues of $1.39 billion with an EPS of $0.65. Adobe expects to end the year with revenues of $5.8 billion and EPS of $2.80, above the Street’s forecast of revenues of $5.74 billion and an EPS of $2.76.

Adobe’s Cloud and Mobile Momentum

Adobe’s performance is attributable to the successful implementation of its cloud and mobile strategy. During the quarter, Adobe recorded over 30% of Creative Cloud subscribers as new to Adobe and to date, it has seen more than 23 million new Adobe IDs created through its mobile apps.

Adobe continues to improve the product offerings to attract more users. Within video services, last quarter, Adobe added over 100,000 native 4K video assets to its library at the Adobe Stock. Adobe Stock is part of its Creative Cloud service which boasts of over 1 million video assets and over 45 million image and graphic media files. It is now also the leader in video production and editing services as it noted that more than 175 films that debuted at the 2016 Sundance Film Festival used Adobe Premiere Pro CC and other Creative Cloud tools.

Within mobile, last year, Adobe began to push into the space by allowing iOS and Android users free access to Lightroom, its photo editing software. While mobile access to Lightroom is free, consumers wishing to edit and sync files through desktop still need to subscribe to Adobe’s Creative Cloud software.

More recently, it announced the preview release of Adobe Experience Design CC, a design and prototyping product that simplifies and accelerates the process of user experience designers to deliver new mobile apps and web sites. Adobe Experience Design (XD) is currently available as a free download to anyone with an Adobe ID and is expected to become commercial release to Adobe Creative Cloud members later this year. According to Behance, the leading online creative community, interaction design projects grew by 52% last year and was the fastest growing creative field in 2015. Adobe XD will be able to integrate designing and prototyping capabilities in a fast and easy to use desktop application that will help designers to move seamlessly from wire-framing and design to prototyping and preview.

The market is pleased with Adobe’s initiatives. Recently, IDC’s MarketScape report called it the market leader among marketing cloud platform vendors. Its stock is trading at $92.50 with a market capitalization of $46.8 billion, settling down after touching a high of $98.00 yesterday. It was trading at a 52-week low of $71.27 last month.