Adobe Reports Record Revenue of $3.94B in Q3 FY2021

Subscriptions represent 93% of total revenue.

Adobe reports record revenue of $3.94 billion for its third quarter of fiscal year 2021 for the period ended September 3, 2021. This represents growth of 22% year-over-year and is a testament to Adobe’s successful pivot to subscription-based services. Though the company made that change in the early 2010s, Adobe is still seeing significant recurring revenue growth because people continue to see value in their products and services.

“Adobe had another outstanding quarter as Creative Cloud, Document Cloud and Experience Cloud continue to transform storytelling, learning and conducting business in a digital-first world,” said Shantanu Narayen, president and CEO, Adobe in a September 21, 2021 news release. “Our talented employees, category-defining innovation and product leadership uniquely position us for continued momentum and success.”

Subscription revenue of $3.66 billion now represents almost 93% of total Adobe revenue, compared to 54.4% of total revenue in September 2014. Product revenue was $119 million, or 3%, of total revenue, and services and other revenue was $159 million, or 4% of total revenue. While recurring revenue and product revenue both increased year-over-year, services and other revenue dropped by $9 million.

Quarterly highlights

Other quarterly highlights include the following:

  • Digital Media segment revenue was $2.87 billion, a 23% increase year-over-year.
  • Creative revenue was $2.37 billion, a 21% increase year-over-year.
  • Document Cloud revenue was $493 million, a 31% increase year-over-year.
  • Digital Media Annualized Recurring Revenue (ARR) grew by $455 million quarter-over-quarter to $11.67 billion.
  • Creative ARR was $9.87 billion, and Document Cloud ARR was $1.79 billion.
  • Cash flow from operations was $1.42 billion.
  • Total operating expenses were $2.0 billion.
  • GAAP net income was $1.21 billion, or $2.52 diluted earnings per share, compared to $955 million and $1.97 diluted earnings per share in the prior year period.
  • At the end of the quarter, Adobe had $4.6 billion in cash and cash equivalents.

“We drove record revenues and strong profitability in the quarter, demonstrating our ability to succeed in a dynamic environment,” said John Murphy, executive vice president and CFO. “Our operational rigor and data-driven insights enable us to execute while we continue to invest across massive market opportunities.”

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Fourth quarter outlook

Adobe provided the following targets for the fourth quarter of fiscal year 2021:

  • Total revenue will be approximately $4.07 billion.
  • Digital Media segment revenue will have approximately 20% growth year-over-year.
  • Digital Media ARR will have $550 million of net new ARR.
  • Digital Experience segment revenue will grow approximately 22%, and Digital Experience subscription revenue will increase approximately 26%
  • GAAP earnings per share will be approximately $2.52.

Addition of payment services for Adobe Commerce

About two weeks after the close of the quarter, Adobe announced they would soon make payment services available for Adobe Commerce, an end-to-end commerce application for B2B, D2C and hybrid models. The new payment services will allow merchants to accept credit and debit cards, PayPayl and Venmo.

“In today’s fast-moving digital economy, organizations demand flexibility and extensibility in their commerce platform to sustain business growth and deliver seamless experiences for their customers,” said Amit Ahuja, vice president, Adobe Experience Cloud Product and Strategy, in a September 15 announcement. “With the addition of Payment Services, we’re thrilled to expand on our already robust out-of-the-box commerce feature set to help Adobe Commerce merchants compete effectively and win in the digital-first economy.”

Insider Take

Though the company posted strong earnings results, Adobe’s stock (NASDAQ: ADBE) dipped from $645.89 on September 21 to $630.84 as of 5:47 p.m. Eastern yesterday. Why the drop? MarketWatch said that the company’s results exceeded Wall Street estimates but recurring revenue fell short of what they’d hoped for. Stockholders can be fickle, however, and Adobe has made a strong pivot to subscriptions. With current growth and estimated fourth quarter growth, Adobe doesn’t appear to be slowing down anytime soon.