Adobe Inc. (ADBE Quick QuoteADBE - Free Report) reported fourth-quarter fiscal 2022 non-GAAP earnings of $3.60 per share, beating the Zacks Consensus Estimate by 2.9%. The figure improved 12.5% on a year-over-year basis and 5.9% sequentially.

Total revenues were $4.525 billion, which beat the Zacks Consensus Estimate of $4.522 billion. The figure was up 10% from the year-ago quarter and 2.1% from the previous quarter.

Top line growth was driven by the strong performance of Adobe Creative Cloud, Document Cloud and Experience Cloud. Accelerating subscription and service revenues contributed well.

Top Line in Detail

Adobe reports revenues under three categories — subscription, product and services & support.

Subscription revenues were $4.23 billion (accounting for 93.5% of total revenues), up 11% on a year-over-year basis.

Product revenues totaled $115 million (2.5% of total revenues), down 10.2% year over year.

Services & support revenues were $178 million (4% of total revenues), increasing 4.7% from the prior-year quarter.

Segmental Details

Digital Media: The segment generated revenues of $3.3 billion, which improved 10% on a year-over-year basis. The segment comprises Creative Cloud and Document Cloud. Notably, Digital Media’s annualized recurring revenues (ARR) increased to $13.97 billion, of which the net new ARR was $576 million.

Creative Cloud generated $2.68 billion in revenues, up 8% year over year. Creative ARR was $11.6 billion. The rising demand for Photoshop, Lightroom, Illustrator, Premier Pro and Acrobat contributed well. Solid momentum across Adobe Express platform remained positives. Strength across Substance 3D and Frame.io was a tailwind.

Document Cloud’s revenues were $619 million, up 16% from the prior-year quarter. Document ARR was $2.37 billion. Increasing traffic and searches for PDF capabilities were tailwinds. Solid momentum across the Acrobat ecosystem drove top line growth. Rising Sign transactions within Acrobat remained a positive. Further, strength in Scan capabilities also contributed well.

Digital Experience: The segment generated revenues of $1.15 billion, up 14% on a year-over-year basis. The segment comprises Adobe Experience Cloud. Experience Cloud subscription revenues were $1.01 billion, which rose 14% from the year-ago quarter. Strong momentum across the Experience Cloud platform drove top-line growth for the segment. Growing demand for Adobe Experience Manager and strong adoption of Adobe professional services were tailwinds. Further, strength in applications like Real-Time CDP, Adobe Journey Optimizer and Consumer Journey Analytics was another positive.

Operating Details

The gross margin was 87.4%, which contracted 30 basis points (bps) on a year-over-year basis.

Adobe incurred operating expenses of $2.45 billion, reflecting a 16.7% year-over-year increase. As a percentage of the total revenues, the figure expanded 310 bps to 54.2%.

The adjusted operating margin was 44.1%, contracting 50 bps year over year.

Balance Sheet & Cash Flow

As of Dec 2, 2022, the cash and short-term investment balance was $6.1 billion, up from $5.8 billion as of Sep 2, 2022. Trade receivables were $2.1 billion, up from $1.7 billion recorded in the fiscal third quarter.

Long-term debt was $3.629 billion at the end of the fiscal fourth quarter compared to $3.627 billion at the end of the fiscal third quarter.

Cash generated from operations was $2.3 billion in the fiscal fourth quarter versus $1.7 billion in the fiscal third quarter. In the reported quarter, the company repurchased 5 million shares.

Guidance

For first-quarter fiscal 2023, Adobe projects total revenues between $4.60-$4.64 billion. The Zacks Consensus Estimate for revenues is pegged at $4.62 billion.

Adobe expects Digital Media revenues between $3.350-$3.375 billion. The Digital Experience segment’s revenues are expected between $1.16-$1.18 billion.

Net new ARR in the Digital Media segment is projected at $375 million. Digital Experience subscription revenues are anticipated to be within $1.025-$1.045 billion.

Management expects non-GAAP earnings between $3.65-$3.70 per share. The Zacks Consensus Estimate for the same is pegged at $3.61.

For fiscal 2023, Adobe projects total revenues between $19.1-$19.3 billion, reflecting a year-over-year growth of 9% at midpoint. The Zacks Consensus Estimate for revenues is pegged at $19.18 billion.

Adobe expects Digital Media revenues between $13.9-$14 billion, reflecting a year-over-year growth of 9% at midpoint. The Digital Experience segment’s revenues are expected between $4.925-$5.025 billion, suggesting a year-over-year growth of 13% at midpoint.

Net new ARR in the Digital Media segment is projected at $1.65 billion. Digital Experience subscription revenues are anticipated to be within $4.375-$4.425 billion.

Management expects non-GAAP earnings between $15.15-$15.45 per share. The Zacks Consensus Estimate for the same is pegged at $15.18.

Zacks Rank & Stocks to Consider

Currently, Adobe carries a Zacks Rank #3 (Hold).

Investors interested in the broader Zacks Computer & Technology sector can consider some better-ranked stocks like Arista Networks (ANET Quick QuoteANET - Free Report) , Asure Software (ASUR Quick QuoteASUR - Free Report) and Agilent Technologies (A Quick QuoteA - Free Report) . While Arista Networks and Asure Software sport a Zacks Rank #1 (Strong Buy), Agilent Technologies carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks has lost 8.9% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 17.5%.

Asure Software has gained 3.7% in the year-to-date period. The long-term earnings growth rate for ASUR is currently projected at 23%.

Agilent Technologies has lost 42.6% in the year-to-date period. ABNB’s long-term earnings growth rate is currently projected at 20.7%.