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Adobe Inc. (ADBE - Free Report) reported second-quarter fiscal 2023 non-GAAP earnings of $3.91 per share, beating the Zacks Consensus Estimate by 3.4%. The figure improved 16.7% on a year-over-year basis.
Total revenues were $4.82 billion, which beat the Zacks Consensus Estimate of $4.76 billion. The figure was up 10% on a reported basis and 13% on a constant currency basis from the year-ago quarter.
Top-line growth was driven by the strong performance of Adobe Creative Cloud, Document Cloud and Experience Cloud. Further, accelerating subscription revenues contributed well.
Notably, shares of Adobe have gained 3.5% in the after-hours market owing to better-than-expected results and strong outlook. Additionally, the company remains optimistic about the prospects of generative AI.
ADBE has gained 45.8% on a year-to-date basis, outperforming the industry’s rally of 40%.
Adobe reports revenues under three categories — Subscription, Product, and Services & support.
Subscription revenues were $4.5 billion (accounting for 93.8% of total revenues), up 11% on a year-over-year basis.
Product revenues totaled $130 million (2.7% of total revenues), down 10.9% year over year.
Services & support revenues were $169 million (3.5% of total revenues), decreasing 0.6% from the prior-year quarter.
Segmental Details
Digital Media: The segment generated revenues of $3.51 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 $14.14 billion, of which the net new ARR was $470 million.
Creative Cloud generated $2.85 billion in revenues, up 9% year over year. Creative ARR was $11.64 billion. Adobe’s growing momentum in generative AI on the back of Firefly remained a major positive. Moreover, the integration of generative AI capabilities into Photoshop, Illustrator and Adobe Express contributed well. Further, strength in Lightroom mobile was positive. The expansion of Frame.io was another positive. All these factors led to strong customer wins, which include EY, the government of Philippines, NVIDIA and Omnicom, among others.
Document Cloud’s revenues were $659 million, up 11% from the prior-year quarter. Document ARR was $2.5 billion. The growing demand for PDF collaboration services was a tailwind. Further, solid momentum across the Acrobat ecosystem on the back of growing Acrobat verb searches and PDF consumption via Chrome and Edge extensions led to strong growth in monthly active users of Acrobat Web. This apart, new workflows between Acrobat and Express were positive. All these factors contributed well to the customer base expansion. Key customer wins were Boston Consulting Group, Cushman & Wakefield, Novartis, T-Mobile and WPP.
Digital Experience: The segment generated revenues of $1.22 billion, up 12% on a year-over-year basis. The segment comprises Adobe Experience Cloud. Experience Cloud subscription revenues were $1.07 billion, which rose 11% from the year-ago quarter. Strong demand for AEP and native apps contributed well. Solid momentum in Real-Time CDP, Adobe Product Analytics, Content Supply Chain solutions and Adobe Mis Modeler was a positive. Further, growing demand for Workfront drove the top-line growth within the segment.
Operating Details
The gross margin was 88.1%, which expanded 40 basis points (bps) on a year-over-year basis.
Adobe incurred operating expenses of $2.6 billion, reflecting a 13% year-over-year increase. As a percentage of total revenues, the figure expanded 160 bps to 54.4%.
The adjusted operating margin was 45.3%, expanding 30 bps year over year.
Balance Sheet & Cash Flow
As of Jun 2, 2023, the cash and short-term investment balance was $6.6 billion, up from $5.6 billion as of Mar 3, 2023. Trade receivables were $1.7 billion, down from $1.8 billion in the fiscal first quarter.
Long-term debt was $3.631 billion at the end of the fiscal second quarter compared with $3.630 billion at the fiscal first-quarter end.
Cash generated from operations was $2.1 billion in the fiscal second quarter versus $1.7 billion in the fiscal first quarter. In the reported quarter, the company repurchased 2.7 million shares.
Guidance
For third-quarter fiscal 2023, Adobe projects total revenues between $4.83 and $4.87 billion. The mid-point of the range is above the Zacks Consensus Estimate of $4.84 billion.
Adobe expects Digital Media revenues between $3.55 and $3.57 billion. The Digital Experience segment’s revenues are expected to be between $1.21 and $1.23 billion.
Net new ARR in the Digital Media segment is projected to be $410 million. Subscription revenues of Digital Experience are anticipated to be within $1.08-$1.10 billion.
Management expects non-GAAP earnings between $3.95 and $4.00 per share. The Zacks Consensus Estimate is pegged at $3.85 per share.
For fiscal 2023, Adobe projects total revenues between $19.25 and $19.35 billion. The consensus estimate for the same is $19.22 billion.
Adobe expects Digital Media revenues between $14.10 and $14.15 billion. The Digital Experience segment’s revenues are expected to be between $4.85 and $4.90 billion.
Net new ARR in the Digital Media segment is projected to be $1.75 billion. Subscription revenues of Digital Experience are anticipated to be within $4.30-$4.35 billion.
Management expects non-GAAP earnings between $15.65 and $15.75 per share. The Zacks Consensus Estimate is pegged at $15.44 per share.
Image: Shutterstock
Adobe (ADBE) Q2 Earnings & Revenues Beat Estimates, Rise Y/Y
Adobe Inc. (ADBE - Free Report) reported second-quarter fiscal 2023 non-GAAP earnings of $3.91 per share, beating the Zacks Consensus Estimate by 3.4%. The figure improved 16.7% on a year-over-year basis.
Total revenues were $4.82 billion, which beat the Zacks Consensus Estimate of $4.76 billion. The figure was up 10% on a reported basis and 13% on a constant currency basis from the year-ago quarter.
Top-line growth was driven by the strong performance of Adobe Creative Cloud, Document Cloud and Experience Cloud. Further, accelerating subscription revenues contributed well.
Additionally, strengthening generative artificial intelligence (AI) efforts contributed well.
Notably, shares of Adobe have gained 3.5% in the after-hours market owing to better-than-expected results and strong outlook. Additionally, the company remains optimistic about the prospects of generative AI.
ADBE has gained 45.8% on a year-to-date basis, outperforming the industry’s rally of 40%.
Adobe Inc. Price, Consensus and EPS Surprise
Adobe Inc. price-consensus-eps-surprise-chart | Adobe Inc. Quote
Top Line in Detail
Adobe reports revenues under three categories — Subscription, Product, and Services & support.
Subscription revenues were $4.5 billion (accounting for 93.8% of total revenues), up 11% on a year-over-year basis.
Product revenues totaled $130 million (2.7% of total revenues), down 10.9% year over year.
Services & support revenues were $169 million (3.5% of total revenues), decreasing 0.6% from the prior-year quarter.
Segmental Details
Digital Media: The segment generated revenues of $3.51 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 $14.14 billion, of which the net new ARR was $470 million.
Creative Cloud generated $2.85 billion in revenues, up 9% year over year. Creative ARR was $11.64 billion. Adobe’s growing momentum in generative AI on the back of Firefly remained a major positive. Moreover, the integration of generative AI capabilities into Photoshop, Illustrator and Adobe Express contributed well. Further, strength in Lightroom mobile was positive. The expansion of Frame.io was another positive. All these factors led to strong customer wins, which include EY, the government of Philippines, NVIDIA and Omnicom, among others.
Document Cloud’s revenues were $659 million, up 11% from the prior-year quarter. Document ARR was $2.5 billion. The growing demand for PDF collaboration services was a tailwind. Further, solid momentum across the Acrobat ecosystem on the back of growing Acrobat verb searches and PDF consumption via Chrome and Edge extensions led to strong growth in monthly active users of Acrobat Web. This apart, new workflows between Acrobat and Express were positive. All these factors contributed well to the customer base expansion. Key customer wins were Boston Consulting Group, Cushman & Wakefield, Novartis, T-Mobile and WPP.
Digital Experience: The segment generated revenues of $1.22 billion, up 12% on a year-over-year basis. The segment comprises Adobe Experience Cloud. Experience Cloud subscription revenues were $1.07 billion, which rose 11% from the year-ago quarter. Strong demand for AEP and native apps contributed well. Solid momentum in Real-Time CDP, Adobe Product Analytics, Content Supply Chain solutions and Adobe Mis Modeler was a positive. Further, growing demand for Workfront drove the top-line growth within the segment.
Operating Details
The gross margin was 88.1%, which expanded 40 basis points (bps) on a year-over-year basis.
Adobe incurred operating expenses of $2.6 billion, reflecting a 13% year-over-year increase. As a percentage of total revenues, the figure expanded 160 bps to 54.4%.
The adjusted operating margin was 45.3%, expanding 30 bps year over year.
Balance Sheet & Cash Flow
As of Jun 2, 2023, the cash and short-term investment balance was $6.6 billion, up from $5.6 billion as of Mar 3, 2023. Trade receivables were $1.7 billion, down from $1.8 billion in the fiscal first quarter.
Long-term debt was $3.631 billion at the end of the fiscal second quarter compared with $3.630 billion at the fiscal first-quarter end.
Cash generated from operations was $2.1 billion in the fiscal second quarter versus $1.7 billion in the fiscal first quarter. In the reported quarter, the company repurchased 2.7 million shares.
Guidance
For third-quarter fiscal 2023, Adobe projects total revenues between $4.83 and $4.87 billion. The mid-point of the range is above the Zacks Consensus Estimate of $4.84 billion.
Adobe expects Digital Media revenues between $3.55 and $3.57 billion. The Digital Experience segment’s revenues are expected to be between $1.21 and $1.23 billion.
Net new ARR in the Digital Media segment is projected to be $410 million. Subscription revenues of Digital Experience are anticipated to be within $1.08-$1.10 billion.
Management expects non-GAAP earnings between $3.95 and $4.00 per share. The Zacks Consensus Estimate is pegged at $3.85 per share.
For fiscal 2023, Adobe projects total revenues between $19.25 and $19.35 billion. The consensus estimate for the same is $19.22 billion.
Adobe expects Digital Media revenues between $14.10 and $14.15 billion. The Digital Experience segment’s revenues are expected to be between $4.85 and $4.90 billion.
Net new ARR in the Digital Media segment is projected to be $1.75 billion. Subscription revenues of Digital Experience are anticipated to be within $4.30-$4.35 billion.
Management expects non-GAAP earnings between $15.65 and $15.75 per share. The Zacks Consensus Estimate is pegged at $15.44 per share.
Zacks Rank & Other Stocks to Consider
Currently, Adobe carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are Palo Alto Networks (PANW - Free Report) , NVIDIA (NVDA - Free Report) and AMETEK (AME - Free Report) . Palo Alto Networks and NVIDIA sport a Zacks Rank #1 (Strong Buy) each, while AME carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Palo Alto Networks shares have gained 65% in the year-to-date period. The long-term earnings growth rate for PANW is currently projected at 31.5%.
NVIDIA shares have rallied 173.8% in the year-to-date period. Its long-term earnings growth rate is presently projected at 23.02%.
AMETEK shares have increased 10.2% in the year-to-date period. The long-term earnings growth rate for AME is currently projected at 8.95%.