Adobe Rises to a 52-Week High

Adobe (Nasdaq: ADBE) has successfully transitioned its business to subscriptions over the past few years. Profits and revenues slumped in the initial transition period, but that phase is finally over. The company is now producing impressive growth. Last week, it reported its twelfth straight quarter of revenue growth driven by growth in its marketing cloud and digital media segments.

Adobe’s Financials

Adobe’s first quarter revenues grew an impressive 22% over the year to $1.68 billion, ahead of the market’s projections of $1.64 billion. Net income was $398.5 million or $0.81 per share. Non GAAP EPS was $0.94, which was also ahead of the Street’s estimated $0.87 per share.

Deferred revenue grew to a record $2.06 billion, up 28% year-over-year. Its cash and short-term investment position at the end of the quarter was $4.65 billion. In January, it announced another share repurchase grant for $2.5 billion.

Subscription revenues grew 29% to $1.38 billion and services and support revenues grew 2% to $0.11 billion. Product revenues fell 9% to $0.18 billion.

By segment, revenues from the Digital Media segment grew 22% over the year to $1.14 billion, with record Creative revenue of $942 million, up 29% driven by strong subscription adoption and retention, strength with Creative Cloud for teams – particularly in Europe – and continued growth with Adobe Stock. Document Cloud revenues were $196 million. Revenues from the Adobe Marketing Cloud segment grew 26% to $477 million with revenues from its recent $540 million acquisition of TubeMogul at $32 million.

Mobile remains a key driver for its Marketing Cloud business with mobile data transactions growing to 56% of total Adobe Analytics transactions in the quarter. Total data transactions in Q1 grew to 41.3 trillion, and in the trailing four quarters, data transactions with its Marketing Cloud solutions exceeded 100 trillion.

For the current quarter, Adobe expects to earn revenues of $1.73 billion with a GAAP EPS of $0.66 and a non GAAP EPS of $0.94. It expects 24% growth in its Digital Media segment and 26% growth in the Adobe Marketing Cloud segment. The market was looking for revenues of $1.72 billion with an EPS of $0.91.

Adobe’s Competition

Gartner’s Magic Quadrant for Digital Marketing Hubs has placed Adobe, Oracle, and Salesforce close to each other in the leader’s quadrant, followed by Marketo. The challengers in the quadrant include IBM, Nielsen, MediaMath, Turn, and DataXu.

Gartner highlighted Adobe’s Marketing Cloud as a leader in the field for mid- and large-size organizations. It achieved top ratings in marketing strategy, innovation, product quality, and customer experience and its wide scope of deployment, support ecosystem, and positive references helped it strengthen its leadership position. However, Gartner warned that complexity of the Adobe product set, identity management gap, and cross-cloud integration are areas that require improvement. Well, those could easily be fixed with a few strategic acquisitions!

Its stock spiked to a 52-week high of $130.3 following its upbeat performance. It is currently trading around $127.01 with a market cap of about $63 billion. It has recovered significantly from the low of $90.35 it had fallen to in June last year.

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