Adobe Beats Estimates

Last month, Adobe (NASDAQ:ADBE) reported strong second quarter results that beat estimates. The clash between Adobe and Apple over Flash ended with Adobe making a conciliatory move and releasing a Flash-to-HTML5 converter. Last week, Google also released a Flash-to HTML5 converter called Swiffy. Let’s take a closer look.

Google’s Swiffy launch does not mean it has abandoned Flash: It still supports Flash on its Android devices, which provides the company with a differentiating factor over Apple iOS devices. Thomas Claborn of InformationWeek reports that with Adobe and Google releasing Flash-to-HTML5 converters, there are a growing number of small companies and developers offering Flash animation alternatives.

Apple had banned Flash on its iOS mobile devices and instead opted for HTML5 for video and animation, saying that Flash technology was slow and insecure. However, it then relented somewhat by letting third-party developers use Flash technology for applications. Then, Adobe followed it up with a Flash-to-HTML5 converter tool called Wallaby. Adobe is also reported to be working on a tool for creating animation using HTML5, CSS, and Javascript.

Though the clash between Apple and Adobe over Flash has ended, the rivalry between the two companies continues. Apple recently released Final Cut Pro X to widespread criticism over missing crucial features from the earlier version of Final Cut Pro 7. Adobe is capitalizing on the situation by directing these disgruntled users to its Premiere Pro product. It has even created video tutorials to help with the switch.

Adobe’s Recent Financials
Adobe last month reported second-quarter revenue of $1.023 billion, up 9%. Adobe had forecast second quarter revenue of $0.97 billion to $1.02 billion. Adobe had warned last quarter that the catastrophic earthquake in Japan could hurt its revenue by as much as $50 million, but the actual impact in Japan came down to a $10 million dent in revenue during the quarter. Net income grew 54% to $229.4 million or $0.45 per share. Non-GAAP EPS was $0.55, beating analyst estimates of $0.51 per share on revenue of $996.1 million.

Creative and Interactive Solutions segment revenue was $433.1 million compared to $423.3 million in Q2 fiscal 2010 when it launched CS 5 and $424.8 million last quarter. Digital Media Solutions revenue was $136.7 million compared to $231.9 million last year. Digital Enterprise Solutions revenue was $283.5 million compared to $231.9 million last year. Within Digital Enterprise Solutions, Knowledge Worker revenue was $182 million, compared to $156 million last year.

Enterprise segment revenue was $101.5 million compared to $75.9 million last year and $104.8 million last quarter. In the Omniture segment, revenue was $115.9 million compared to $91.9 million reported last year and $110.9 million last quarter. Print and Publishing revenue was $54 million compared to $55.6 million last year and $53.7 million last quarter.

In terms of regions, Adobe experienced weaker-than-expected demand in EMEA, but the demand environment in the Americas remained stable.

Adobe expects third-quarter revenue in the range of $1 billion to $1.05 billion. Non-GAAP EPS is expected to be $0.50 to $0.56 compared to analyst estimates of $0.54 on revenue of $1.02 billion. Adobe also reaffirmed its target of 10% revenue growth in fiscal year 2011. The company expects  Omniture and Enterprise segments to grow sequentially. It expects Creative and Interactive, as well as Digital Media solutions to be flat to slightly up. Geographically, it expects the Americas to grow sequentially, offset by an expected sequential decline in Asia and EMEA due to normal seasonality in those markets.

Adobe repurchased 13.7 million shares during the quarter for 461.6 million and ended the quarter with $2.6 billion in cash and short-term investments. Its annual revenue in 2010 was $3.8 billion. The stock is trading around $31.53 with market cap of about $15.9 billion. It hit a 52-week high of $35.99 on May 11.