Last week Adobe (NASDAQ: ADBE) reported record revenue of $2.20 billion, representing a 24 percent increase year-over-year, for the second quarter of fiscal year 2018 ended June 1, 2018. Subscription revenue represented $1.92 billion in revenue, compared to Product revenue of $151.0 million and Services and Support revenue of $121.2 million. Net income for the quarter was $663.2 million, or $1.33 diluted net income per share (GAAP). 

‘Adobe delivers all the capabilities to enable transformative digital experiences, including content creation and management, predictive analytics and commerce,’ said Shantanu Narayen, Adobe president and CEO, in a news release. ‘Our record results in Q2 reflect continued execution against this significant opportunity where Adobe is the clear market leader.’

John Murphy, executive vice president and CFO, also commented on the company’s solid financials.

‘Adobe delivered record revenue with strong earnings and cash flow, and we expect our momentum to continue in the second half of fiscal 2018,’ Murphy said.

Other highlights for Q2 include the following:

• Digital Media revenue was $1.55 billion, Creative revenue increased to $1.30 billion and Document Cloud hit record revenue of $243 million, a 22 percent increase year-over-year.
• Digital Experience revenue was $586 million, an 18 percent increase year-over-year.
• Deferred revenue grew 27 percent year-over-year to $2.63 billion.
• Digital Media Annualized Recurring Revenue (ARR) was $6.06 billion at the end of the quarter.
• Creative ARR was $5.37 billion, and Document Cloud ARR was $694 million.
• Cash flow from operations was $976 million.
• Adobe repurchased 2.6 million shares of stock during Q2, returning $589 million in cash to stockholders.
• The company had cash and cash equivalents of $2.99 billion and $7.74 billion in total current assets at the end of the quarter.

Murphy provided the following outlook for the third quarter of fiscal year 2018:

• Total revenue of approximately $2.240 billion.
• Digital Media revenue growth of approximately 25 percent.
• Digital Experience revenue growth of approximately 15 percent.
• Net new Digital Media ARR of approximately $310 million.
• GAAP earnings per share of approximately $1.27.

During the second quarter, Adobe announced its plan to acquire Magento, a commerce platform, for $1.68 billion.

‘The acquisition of Magento will make Adobe the only company with leadership in content creation,

marketing, advertising, analytics and now commerce – enabling real-time personalized experiences

across the entire customer journey – whether on the web, mobile, social, in-product or in-store,’ said Narayen on the earnings call last week. ‘We believe the addition of Magento expands our available market opportunity, builds out our product portfolio, and addresses a key underserved customer need.’

Adobe stock showed a slight dip from June 14 ($258.10 per share), the day financials were reported, and June 15 ($251.82 per share).

Insider Take:

Since transitioning to a subscription model versus a licensing model, Adobe has positioned itself for long-term sustainability. It continues to churn out high quality products which attract new customers while retaining existing ones. With the acquisition of Magento, Adobe has even more to offer customers, providing a full spectrum of products and services for its clients.