Last week Adobe (NASDAQ: ADBE) reported impressive financials for the second quarter of fiscal year 2016, which ended June 3. At the top of the highlights was record quarterly revenue of $1.4 billion, representing a year-over-year increase of 20 percent. Other period highlights include:

• Digital Media grew to $943 million, a 26 percent increase year-over-year.
• Creative revenue grew to $755 million, a 37 percent increase year-over-year.
• Strong Creative Cloud and Document Cloud adoption drive Digital Media Annualized Recurring Revenue to $3.41 billion at the end of the quarter, an increase of $285 million since the previous quarter.
• Adobe Marketing Cloud earned record revenue of $385 million, an 18 percent increase year-over-year.
• Operating income (GAAP) grew 78 percent year-over-year, and net income (GAAP) grew 66 percent year-over-year.
• The company repurchased 2.2 million shares of stock, returning $205 million in cash to stockholders.

“Our record revenue reflects our market leadership and the exploding demand for digital experience solutions,” said Shantanu Narayen, Adobe president and chief executive officer, in statement.

In terms of subscriptions, Adobe had subscription revenue of $1.08 billion, making up a large percentage of the company’s total revenue. At this time last year, subscription revenue was $774 million, so it has a 40 percent year-over-year increase.

From a cost perspective, the cost of revenue for subscriptions was $115.4 million this period (10.65 percent of $1.08 billion) compared to $103.7 million last year (13.4 percent of $774 million). In other words, Adobe grew subscription revenue, but its percentage of costs actually went down by 2.75 percent.

“Record revenue with strong profit and cash flow highlight our second quarter results,” added Mark Garrett, Adobe executive vice president and chief financial officer. “Based on our first half performance and momentum, we’re on track to meet or exceed all of our annual fiscal year 2016 targets.”

Despite the stellar financials, investors were disappointed and Adobe stock dropped 4.1 percent to $95.60 per share in after-hours trading, reported Reuter. Why? Reuters said they didn’t meet analysts’ estimates for the demand of the company’s Creative Cloud package of software. As of 2:23 PM EST today, stock continued to drop to $90.79 per share.

Insider Take:

Adobe put up some great numbers this quarter. They’re fine-tuning their subscription and recurring revenue strategy while reducing their costs to acquire the business, and their enthusiasm to lead the cloud computing industry is commendable. Ultimately, however, it is up to the investors to determine the company’s value. If they aren’t impressed are won’t back the company financially, it doesn’t matter how great Adobe’s numbers are. Adobe’s best bet may be to keep doing what they’re doing, but to adjust their guidance so that their actual results are more in line with analyst predictions.