Adobe Inc. ( ADBE Quick Quote ADBE - Free Report) reported second-quarter fiscal 2021 non-GAAP earnings of $3.03 per share, beating the Zacks Consensus Estimate by 7.8%. Further, the figure improved 23.7% on a year-over-year basis. Total revenues were $3.84 billion, which surpassed the Zacks Consensus Estimate of $3.73 billion. Further, the figure was up 23% from the year-ago quarter. Top-line growth was driven bythe strong performance of Adobe Creative Cloud, Document Cloud and Experience Cloud. Further, growing subscription revenues contributed to the results. Top Line in Detail
Adobe reports revenues in three categories — subscription, product, and services & support.
Subscription revenues were $3.5 billion (accounting for 91.8% of its total revenues), up 24.3% on a year-over-year basis. Product revenues totaled $153 million (4% of revenues), up 19.5% year over year. Services & support revenues were $162 million (4.2% of revenues), declining 4.1% from the prior-year quarter. Segment Details Digital Media: The segment generated revenues of $2.8 billion, which improved 25% on a year-over-year basis. The segment comprises Creative Cloud and Document Cloud. Notably, Digital Media annualized recurring revenues (ARR) increased to $11.2 billion. Creative Cloud generated $2.3 billion of revenues, up 24% year over year. Additionally, Creative ARR was$9.5 billion, with a net new ARR of $405 million. The strong performance of Adobe Lightroom and Photoshop contributed to the segment’s revenues. Moreover, growth in creative mobile applications was a tailwind. Further, the company witnessed strong customer acquisition in core creative categories, which remained positive. Document Cloud’s revenues were $469 million, up 30% from the prior-year quarter. Moreover, Document ARR was $1.7 billion, with a net new ARR of $113 million. The growing adoption rate of Acrobat and solid momentum across Acrobat Web servicesremained a positive.Further, the rising demand for Acrobat Mobile and Adobe Scan apps contributed well. Also, strength across Adobe Sign drove top-line growth. Digital Experience: The segment generated revenues of $938 million, up 21% on a year-over-year basis. The segment is comprisedof Adobe Experience Cloud. Experience Cloudsubscription revenues were $817 million, which rose 25% from the year-ago quarter. Strong momentum across Adobe Experience Platform contributed well. Further, solid momentum across large multi-solution deals remained a major positive. Operating Details
Gross margin was 88.4%, which expanded 170 basis points (bps) on a year-over-year basis.
Adobe incurred operating expenses of $1.9 billion, reflecting a 17% year-over-year increase. As a percentage of total revenues, the figure contracted to 240 bps to 51.8%. As a result, adjusted operating margin was 45.9%, expanding 320 bps year over year. Balance Sheet & Cash Flow
As of Jun 4, 2021, cash and short-term investment balance was $5.8 billion, up from $4.9 billion as of Mar 5, 2021. Trade receivables were $1.47 billion, down from $1.52 billion recorded in the fiscal first quarter.
Cash generated from operations was $1.9 billion in the fiscal second quarter versus $1.8 billion in the fiscal first quarter. In the reported quarter, the company repurchased 2.1 million shares. Guidance
For third-quarter fiscal 2021, Adobe projects total revenues of $3.88 billion. The Zacks Consensus Estimate for revenues is pegged at $3.85 billion.
Adobe expects year-over-year revenue growth of 22% from Digital Media. The Digital Experience segment’s revenues are expected to grow 21% on a year-over-year basis. Also, Digital Experience subscription revenues are likely to increase 25%. Further, management expects non-GAAP earnings of $3.00 per share. The Zacks Consensus Estimate for the same is pegged at $2.90 per share. Zacks Rank & Stocks to Consider
Adobe carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are
Alphabet Inc. ( GOOGL Quick Quote GOOGL - Free Report) , Applied Materials, Inc. ( AMAT Quick Quote AMAT - Free Report) and Agilent Technologies, Inc. ( A Quick Quote A - Free Report) . While Alphabet currently sports a Zacks Rank #1 (Strong Buy), Applied Materials and Agilent carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rates for Alphabet, Applied Materials and Agilent are pegged at 18.13%, 17.97% and 13%, respectively.
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