The News: Adobe Inc. shares slipped 1% in extended trading Tuesday after the software company reported fiscal first-quarter revenue that surpassed Wall Street analysts’ lofty forecasts but offered tepid guidance.
The company reported net income of $1.27 billion, or $2.66 a share, compared with net income of $1.26 billion, or $2.61 a share, in the year-ago quarter. Adjusted earnings were $3.37 a share.
Revenue surged 9% to a record $4.26 billion from $3.91 billion a year ago. Digital Media accounted for $3.1 billion.
Read the full news story on MarketWatch.
Analyst Take: Adobe delivered another top-notch result in its Q1 delivering growth across segments and record top-line revenue.
Adobe touches a massive swath of consumers either directly or indirectly. Last week on Forbes, I wrote a piece diving into the company’s recent Digital Economy Index, which comes from trillions of transaction data points across the internet. Across the company’s multiple business segments, which are comprised of its Creative Cloud, Document Cloud, and Experience Cloud, there is growth to be found. Global leaders depend on the trio of suites, and just about every knowledge worker on the planet engages with Adobe’s Document Cloud and/or Experience Cloud on a daily basis through everyday interactions with e-commerce and document correspondence. In short, the growth doesn’t strike me as surprising, but rather a reflection of the strength of digital transformation and Adobe’s current positioning in these markets.
At a Glance
- Digital Media segment revenue was $3.11 billion, which represents 9 percent year-over-year growth or 17 percent adjusted year-over-year growth1. Creative revenue grew to $2.55 billion, representing 7 percent year-over-year growth or 16 percent adjusted year-over-year growth1. Document Cloud revenue was $562 million, representing 17 percent year-over-year growth or 26 percent adjusted year-over-year growth.
- Digital Media Annualized Recurring Revenue (“ARR”) increased $418 million quarter over quarter to $12.57 billion exiting the quarter. Creative ARR grew to $10.54 billion and Document Cloud ARR grew to $2.03 billion.
- Digital Experience segment revenue was $1.06 billion, representing 13 percent year-over-year growth or 20 percent adjusted year-over-year growth1. Digital Experience subscription revenue was $932 million, representing 15 percent year-over-year growth or 22 percent adjusted year-over-year growth.
The growth of these segments fall in line with a strong performance, and the fact that its revenue is largely ARR only makes the company a better bet for investors. The slower growth in Creative Cloud is something to watch, but I believe Adobe’s stepped up efforts in Metaverse, which were reaffirmed in its recent Summit event, will provide a roadway to faster growth for that business. Not much to worry about with these numbers otherwise. The mid-teen to twenties percent growth falls in line with the likes of Salesforce in mature categories.
Decision to Exit Russia Weighs on Guidance
As we have seen a strong united front of tech leaders withdrawing certain or all business from Russia in the wake of the war in Ukraine, Adobe did mark down an aggregate of $87 million in ARR from its operations in Russia and Ukraine. This reflected 100% of the current ARR for both markets. However, the company did notate that it will continue to support its customers in Ukraine, which represent $12 million in ARR. Despite these changes the company did not reduce its full year guidance.
Of course, the decision to exit based upon Russia’s decision to invade Ukraine unprovoked must be seen as the right move by Adobe. The decision to put people and humanitarian causes ahead of profits is the only course of action for global leaders like Adobe. I commend this decision and the maintained guidance seems to foreshadow a confidence that the lost revenue will be made up elsewhere as continued demand for Adobe solutions remains.
Overall Impressions on Adobe Q1 Earnings
Adobe’s results are in line with the recent run of solid growth and performance from enterprise software and cloud leaders. The strength of its ARR and the record revenue should provide the market with confidence in the company’s continued strong execution. I like the company’s market position and the bets it is making on the next generation of digital and web experiences.
Of course, the ongoing conflict in Ukraine and the decision to pull out of Russia will weigh on the company’s revenues in the next quarter, however, Adobe is a company that thinks bigger than short term results—evident in both the company’s results and decision making to put humanitarian causes ahead of profits.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Other insights from Futurum Research:
An Inside Look at Adobe’s Digital Economy Index – Futurum Tech Webcast Interview Series
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
