Last week, Adobe reported record results for the second quarter of fiscal year 2021 for the period ending June 4, 2021. Adobe had quarterly revenue of $3.84 billion, representing 23% growth year-over-year. Cash flows from operations hit a record $1.99 billion. Total net income was $1.1 billion, or $2.32 diluted earnings per share.
“Adobe had an outstanding second quarter as Creative Cloud, Document Cloud and Experience Cloud continue to transform work, learn and play in a digital-first world,” said Shantanu Narayen, Adobe president and CEO, in a June 17 news release. “Our innovative product roadmap and unparalleled leadership in creativity, digital documents and customer experience management position us for continued success in 2021 and beyond.”
Quarterly highlights
Highlights for the quarter include the following:
- Digital Media segment revenue was $2.79 billion, representing 25% growth year-over-year.
- Digital Media Annualized Recurring Revenue (ARR) grew $518 million quarter-over-quarter to $11.2 billion in the exiting quarter.
- Creative revenue was $2.32 billion, representing 24% growth year-over-year.
- Creative ARR grew to $9.53 billion.
- Document Cloud revenue was $469 million, representing 30% growth year-over-year.
- Document Cloud ARR was $1.68 billion.
- Digital Experience segment revenue was $938 million, representing 21% growth year-over-year.
- Digital Experience subscription revenue was $817 million, representing 25% growth year-over-year.
- Overall subscription revenue was $3.5 billion, or 91.7% of total revenue.
“Adobe delivered strong Digital Media annualized recurring revenue and Digital Experience bookings, as well as record cash flows from operations in Q2,” said John Murphy, executive vice president and CFO. “The large market opportunity and momentum we are seeing across our creative, document and customer experience management businesses position us well to deliver another record year.
Outlook
The company provided the following guidance for the third quarter of fiscal year 2021:
- Total revenue of approximately $3.88 billion
- Digital Media segment revenue will grow approximately 22%.
- Digital Media ARR will be approximately $440 million of net new ARR.
- Digital Experience segment revenue will grow approximately 21%.
- Digital Experience subscription revenue will grow approximately 25%.
- Earnings per share (GAAP) will be approximately $2.27.
Stock price
Since the company’s June 17 report, stock price grew from $551.36 per share on June 17 to $565.59 as of 4 p.m. Eastern on June 18. A year ago (June 22, 2020), Adobe stock was valued at $438.64 per share.
The move to subscriptions
In 2013, Adobe made the decision to transition away from perpetual software licenses and move toward software as a service. According to VentureBeat, in 2013, Adobe had about $200 million in annual recurring revenue. That has grown to more than $11 billion in ARR. That is a significant turnaround and a fortuitous one. The company now offers a wide range of products and pricing for different needs. Their products include:
- Creative Cloud (individuals, business, teams and enterprise)
- Photoshop
- Photography
- Premiere Pro
- Adobe Stock
- Elements 2021
- Document Cloud
- Adobe
- Adobe Sign
- Experience Cloud
Insider Take
While there may be competing products in the marketplace, Adobe has some of the best SaaS available, and their SaaS pricing structure makes their product suites affordable for most budgets. For example, the Creative Cloud All Apps option which includes more than 20 apps including Photoshop, Illustrator and InDesign is only $52.99 a month. Adobe also offers products for teams, businesses and enterprise level products. Their move to the subscription model has been their golden ticket, and their investors are being handsomely rewarded for their faith in the company.
