Adobe Reports Record Quarterly Revenue of $2.29 Billion

Adobe’s transition to the subscription model continues to be successful, as the SaaS company reports record revenue for the third quarter of its fiscal

Subscription News: Adobe Reports Record Quarterly Revenue of $2.29 Billion

Source: Adobe

Adobe’s transition to the subscription model continues to be successful, as the SaaS company reports record revenue for the third quarter of its fiscal year 2018, ended August 31, 2018. Adobe (NASDAQ: ADBE) earned $2.29 billion in quarterly revenue, a 24 percent increase over the same period the prior year. Subscription revenue of $2.02 billion represented 88.2 percent of total revenue. Revenue from products and services and support made up the remainder.

“Adobe is empowering people to create and transforming how businesses compete. Our execution against this strategy is driving strong financial results across our Digital Media and Digital Experience businesses,” said CEO Shantanu Narayen on the September 13 earnings call.

“In every market around the world, students, creatives, enterprises and governments are choosing Adobe Creative Cloud, Document Cloud and Experience Cloud to deliver the transformative digital experiences required to compete and win today,” Narayen added. “Creative Cloud has become the ‘creativity platform for all,’ with millions of highly engaged subscribers and a strong base of trialists whom we actively convert each month into paying customers.”

Other highlights for the quarter include:

  • Digital Media segment revenue was $1.61 billion, including Creative revenue of $1.36 billion and Document Cloud revenue of $249 million.
  • Digital Media Annualized Recurring Revenue grew to $6.40 billion at the end of the quarter, a $339 million increase quarter-over-quarter. Key customer engagements this quarter included the U.S. Department of Education, Facebook and Walmart.
  • Creative ARR was $5.66 billion, and Document Cloud ARR was $744 million.
  • Digital Experience segment revenue was $614 million, a 21 percent increase year-over-year. Growth in this business segment is fueled, in part, with strategic partners like Microsoft.
  • Digital Experience subscription revenue grew 25 percent year-over-year.
  • Deferred revenue grew 23 percent to $2.71 billion.
  • The company reported net income of $666.29 million, or $1.34 diluted net income per share, compared to $419.57 million, or $0.84 diluted net income per share for Q3 FY17 (GAAP).
  • Operating income grew 32 percent, and net income grew 59 percent year-over-year.
  • Cash flow from operations was $955 million.
  • Adobe repurchased approximately 2.9 million shares during the quarter, returning $714 million in cash to stockholders.
  • In June, Adobe completed its acquisition of Magento, bringing ecommerce capabilities to Adobe Experience Cloud for B2B and B2C customers.
  • Forbes ranked Adobe as the #1 “Best Employer for New College Graduates.”

“As we look to Q4, we are excited about the opportunities ahead. We expect a strong close to Adobe’s 2018 fiscal year and are confident that we have the right strategy, products, people, customers and partners to sustain our growth and momentum,” said Narayen.

Subscription News: Adobe Reports Record Quarterly Revenue of $2.29 Billion

Source: Adobe

“Our strong momentum continued into the second half of fiscal 2018 as Adobe delivered another quarter of sustained revenue growth, strong earnings and cash flow of nearly $1 billion,” said John Murphy, executive vice president and chief financial officer for Adobe, in a news release.

Murphy offered a number of operational highlights during the quarter:

  • Within Digital Media, the company had strong net new subscriptions, driven by strong traffic and customer acquisition on Adobe.com.
  • Growth in individual app subscriptions with the Photography Plan and Acrobat
  • New pricing in North America
  • Seat expansion and adoption of services in the enterprise
  • Adobe.com transitioned its sites in Europe to be GDPR-compliant.

“Retention, upsell, new customer acquisition and conversion remain huge opportunities which we

address through digital marketing campaigns, frequent targeted promotions and the introduction of new offerings across desktop and mobile,” said Murphy.

Murphy offered the following financial outlook for the fourth quarter of fiscal year 2018:

  • Revenue of approximately $2.42 billion
  • Growth in Digital Media of 22 percent
  • Growth in Digital Experience of 20 percent
  • GAAP earnings of approximately $1.42 per share
  • Net new Digital Media ARR of $385 million

“We look forward to a strong Q4 close and another record year for Adobe,” Murphy concluded.

Investors seem to be impressed. On September 12, the day before financials were released, Adobe stock was valued at $267.79 per share. Adobe closed at $268.52 per share. on September 13, and as of 7:44 p.m. EDT on September 14, Adobe stock was up to $274.69 per share, an increase of $6.90 since Wednesday.

Subscription News: Adobe Reports Record Quarterly Revenue of $2.29 Billion

Source: Google

Insider Take:

Adobe has done a great job of transitioning from perpetual licensing to SaaS, and its financials – which consistently exceed expectations – bear that out. Making such a transition is risky – and costly at the beginning – but companies who do it right will reap the rewards. Coupled with stellar products and services, Adobe should finish the year strong.

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