Adobe surges to new highs after FQ1 beat, strong FY16 outlook: Attributed to digital transformation
Next Step client, Adobe’s dramatic increase in market value and earnings through its 5 year transformation from a software company to a digital marketing service / subscription provider clearly demonstrates the positive impact of the new go to market model.
Adobe’s recent quarterly earnings report showed that in addition to beating FQ1 estimates, Adobe (NASDAQ:ADBE) has guided in its earnings presentation (.pdf) for FY16 (ends Nov. ’16) revenue of $5.8B and EPS of $2.80, above a consensus of $5.74B and $2.76. FQ2 guidance is for revenue of $1.365B-$1.415B and EPS of $0.64-$0.70 vs. a consensus of $1.39B and $0.65.
The media software giant also now expects to exit FY16 with Digital Media annual recurring revenue (ARR) on a $4B/year run rate, up from $2.88B at the end of FY15 and prior guidance of $3.875B.
FY16 Digital Media revenue growth is now expected to top 20% (prior guidance was for ~20% growth). Marketing Cloud (ad software/services) revenue and bookings growth guidance is still respectively at ~20% and ~30%.
Top-line performance: Digital Media revenue rose 33% Y/Y in FQ1 on the back of a 44% increase in Creative revenue to $733M. Document Cloud revenue grew a modest 3% Y/Y to $198.8M. Digital Media ARR rose by $250M Q/Q to $3.13B – $2.74B from Creative, $393M from Document Cloud – and is expected to grow by $275M in FQ2. Over 30% of Creative Cloud subs are said to be new to Adobe, and over 23M new Adobe IDs have been issued to date through the company’s mobile apps (many of which are free).
Marketing Cloud revenue rose 21% Y/Y to $377M; growth is expected to slow to 17% in FQ2 due to tough comps. LiveCycle/Web conferencing revenue fell 37% to $28.9M.
Financials: Boosting EPS: $133M was spent to buy back 1.5M shares. Subscriptions made up 77% of revenue, products (traditional software licenses) 15%, and services/support 8%. GAAP operating expenses rose 14% Y/Y to $877M, with $475M spent on sales/marketing, $237M on R&D, and $147M on G&A.
Subscription growth led the deferred revenue balance to rise 36% Y/Y to $1.61B. Adobe ended FQ1 with $4.1B in cash and $1.9B in debt.