Adobe Reports 25 Percent Revenue Growth in Q1 FY2019

Including strong growth in subscriptions

Source: BigStock

Adobe (NASDAQ: ADBE) reported record revenue of $2.60 billion for its first quarter of fiscal year 2019 for the period ended March 1, 2019, representing 25 percent growth compared to $2.08 billion in revenue for the same period last year. Subscription revenue showed significant growth at $2.30 billion, or 88.6 percent of total revenue, compared to $1.79 billion in the first quarter of fiscal year 2018. Product revenue was $170.5 million, and services and support revenue made up the remainder of revenue at $125.4 million.

Adobe president and CEO Shantanu Narayen commented on the strong quarter in a March 14, 2019 earnings call.

“Adobe empowers people to create and transforms how businesses compete, a highly differentiated strategy that we continued to execute well on in Q1. Across all industries and geographies, we are helping customers large and small transform themselves and their businesses with Adobe Creative Cloud, Document Cloud and Experience Cloud,” Narayen said. “Adobe is the clear leader in empowering people to create, and helping businesses transform to deliver the customer experiences needed to compete and win in today’s competitive climate. These two tremendous market opportunities are fueling our business. With the world’s best employees, customers and partners, we are well positioned for further growth and continued success in 2019,” Narayen added.

Highlights for the quarter include:

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  • Digital Media revenue was $1.78 billion, including Creative revenue of $1.49 billion and Adobe Document Cloud revenue of $282 million.
  • Net new Annualized Recurring Revenue was $357 million.
  • Total Digital Media ARR was $7.07 billion.
  • Creative revenue was $1.49 billion, or 22 percent growth year-over-year.
  • Document Cloud revenue was a record $282 million, or 22 percent growth year-over-year.
  • Document Cloud ARR was $856 million.
  • Experience Cloud revenue was $743 million, or 34 percent growth year-over-year.
  • Approximately 91 percent of revenue was from recurring revenue sources.
  • Deferred revenue was $3.22 billion, a 25 percent increase year-over-year.
  • Cash flow from operations was $1.01 billion.
  • New Experience Cloud customers during the first quarter include HSBC, NBC Universal, Bass Pro Shops and WebMD.
  • The company reported first quarter earnings of $674 million, or diluted earnings per share of $1.36 (GAAP) and $1.71 (non-GAAP). According to ZDNet, Wall Street analysts predicted $1.62 per share and revenue of $2.55 billion.
  • Adobe repurchased 2.1 million shares for a total cost of $491 million.

Adobe offered the following guidance for fiscal year 2019:

  • Total revenue of approximately $11.15 billion
  • Digital Media segment revenue growth of 20 percent
  • Net new Digital Media ARR of $1.5 billion
  • Digital Experience segment revenue growth of 34 percent
  • Digital Experience subscription bookings growth of 25 percent
  • GAAP earnings per share of $5.59

Adobe offered this guidance for the second quarter of fiscal year 2019:

  • Q2 revenue of approximately $2.7 billion
  • Digital Media segment revenue growth of 20 percent
  • Net new Digital Media ARR of $370 million
  • Digital Experience segment revenue growth of 32 percent
  • Other Expenses of about $36 million
  • GAAP earnings of $1.20
  • Also, the Adobe Summit will take place in Q2 – on March 26 in Las Vegas.

Analysts are looking for earnings of at least $1.88 per share and revenue of $2.72 billion, says ZDNet. While revenue is consistent with Adobe’s own target, earnings per share don’t come close to matching up.

While earnings per share fell below what financial experts wanted to see, investors don’t seem particularly concerned. On March 14, 2019 – the day earnings were released – Adobe stock was valued at $267.69. Stock dipped the following day to $257.09, but that is inching back up. As of 6:52 p.m. Eastern, Adobe stock was valued at $257.67 per share.

Source: Google

Insider Take:

Adobe has done a great job of shifting its perpetual licensing model to a recurring revenue model, which gives the company more long-term financial sustainability. It also allows customers to come in at a lower price point because they aren’t necessarily making a long-term commitment with a huge, one-time licensing fee. As most SaaS companies, Adobe will continue to experience ups and downs as Wall Street makes assumptions that don’t always turn out to be valid. Springboarding from a first quarter with record revenue, we anticipate Adobe will have a strong fiscal 2019.