Adobe Inc. (ADBE) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to the Second Quarter Fiscal Year ‘21 Adobe Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Jonathan Vaas, VP of Investor Relations. Please go ahead, sir. Jonathan Vaas: Good afternoon, and thank you for joining us. With me on the call today are Shantanu Narayen, Adobe's President and CEO; and John Murphy, Executive Vice President and CFO. On this call, we will discuss Adobe's second quarter fiscal year 2021 financial results. Shantanu Narayen: Thanks, Jonathan. Adobe had another outstanding quarter as the shift to a digital-first world continues to accelerate. From students to creative professionals to small businesses to the world’s largest global enterprises, digital is transforming how we work, learn and play. Adobe’s mission to change the world through digital experiences has never been more relevant. Our strategy to unleash creativity for all, accelerate document productivity and power digital businesses is working. Fueled by our ground-breaking innovation, proven capability to create and lead categories and our expansive global customer base, our opportunity and momentum has never been greater. In Q2, Adobe achieved $3.84 billion in revenue, representing 23% year-over-year growth. GAAP earnings per share for the quarter was $2.32 and non-GAAP earnings per share was $3.03. In our Digital Media business, we drove strong revenue growth in Q2 in both Creative Cloud and Document Cloud, achieving $2.79 billion in revenue, representing 25% year-over-year growth. Net new Digital Media Annualized Recurring Revenue or ARR was $518 million, and total Digital Media ARR exiting Q2 grew to $11.21 billion. John Murphy: Thanks, Shantanu. Q2 was an excellent quarter for Adobe, with strong revenue growth, enterprise bookings in Digital Experience and net new ARR in Digital Media, showing how our solutions are resonating with customers of all types in an increasingly digital world. With our data-driven operating model or DDOM, we continue to utilize our own Experience Cloud technology to optimize customer journeys, driving increasing amounts of traffic to Adobe.com to acquire new customers and raise awareness of our products. We continue to invest for growth in sales and marketing, while also increasing headcount in Q2 to drive product innovation. As a result, in Q2 Adobe achieved revenue of $3.84 billion, which represents 23% year-over-year growth. Operator: Thank you. First we'll go to Keith Weiss from Morgan Stanley. Your line is open. Keith Weiss: Thank you, guys for taking the question and really nice quarter. I think it's pretty remarkable in a quarter where a lot of investors were worried about a difficult comp, net new ARR growth actually accelerated in the quarter. And I was hoping you could dig into that a little bit. It's obvious you guys are building momentum, there's a broader base of customers that are coming into the Digital Media fold. Can you talk a little bit about who that is and kind of where you're seeing the most success in sort of broadening that scope and enabling that building momentum within this business, which is already quite large and well growing? Shantanu Narayen: Thanks, Keith. As you said, it was a really great quarter. And we actually saw great linearity associated with the Digital Media ARR throughout the quarter as well. And as you know, we have this incredible data-driven operating model that allows us to deal with all aspects of the customer funnel from discover, which is done through our marketing attribution all the way through usage and engagement. In terms of the new customers who are coming onto the platform, mobile and communicators is a way we define that Keith are a significant portion of the new customer base. Specialists on the other hand as it relates to 3D&I. Acrobat, as we also mentioned, had a very strong offering. And so I would say the photography and video offerings are really targeting everybody from creative professionals, to communicators, to consumers as is Acrobat. But then we're also seeing some really good adoption of Acrobat across the spectrum. And in our prepared remarks, the last thing I'd say is we also talked about the revival of the Teams business. And as we all know, the small and medium business segment I think was most impacted last year. So, really pleased with it, Keith. So across product offerings, across geographies and across some of the new businesses and services as you said, we saw good strength in Q2. Keith Weiss: Got it. And if I can sneak one in for John on the guide into Q3, the net new ARR guide is about down 15% sequentially. I think there's more than we see seasonally. Is there anything we should be aware of in terms of either kind of one-time items, if you will in Q2, or something we should be looking out for in Q3 that explains that broader than or sort of bigger than normal seasonality, or seasonal decline into Q3? John Murphy: Yeah. Thanks, Keith. When I look at the guide for Q3, it's the largest guide we've done for ARR into Q3. As we talked about last couple of quarters, last year was kind of a really strange year, right, we didn't see the seasonality we typically saw because of the pandemic and everybody being locked down. As things are starting to open up, we're anticipating kind of a return to some of that seasonality that we saw in the past. And so we've factored that into the guide. But we're really excited that we can actually target the highest ARR guide ever in Q3. So overall, great performance and we can see the momentum is still in the business. Keith Weiss: Outstanding, great job, guys. John Murphy: Thank you. Operator: Next we'll go to Alex Zukin from Wolfe Research. Your line is open. Alex Zukin: Hey, guys, thanks for taking the question. So I'll take the other side of the business. On the Digital Experience side. I mean, again, every indicator, whether it was RPO, whether it was the Digital Experience revenue and subscription revenue was strong. Can you talk to what you saw on the quarter, what's changed since the pandemic, and maybe some of the pipelines? And how we should think about that business from here from a growth perspective? Shantanu Narayen: As you point out, Alex, it was a strong quarter. And right through the pandemic, we've been talking about how the interest in our Digital Experience solutions and the belief, when I have conversations with CEOs across every single vertical is that the only way to engage with customers is going to be digital. And I think people are starting to recognize that that investment is an investment that they have to pay. So first, I think from a macro perspective, it's clear that digital transformation and within digital transformation, customer experience management is front and center as something that they want to spend money on. The second thing I would say is, the execution against our new experience platform. And both John and I touched on Customer Journey Analytics and the other services that we're building on top of that, those are clearly resonating with customers, because whether you're B2B or whether you're a B2C, you have to have the ability right now to deliver the personalized experience. So I think the second thing I would say is that the innovation that we're delivering, and the fact that we had summit, and the ability to engage with these customers, certainly I think was an accelerant for the business. The third thing I would say is the ecosystem and the ability of the ecosystem to very quickly ensure that these customers derive value from the investment that we're making. I think that helps both in terms of converting bookings to revenue, but it also helps in terms of growing the book of business with enterprises. So, I would speak to all three of them. I think if you look at our targets as well, in terms of over 20% revenue growth, close to 25% subscription revenue growth that we're seeing in that business, I think we continue to be optimistic that we have the right product that clearly meets a customer need. And, the execution in the company against that business has been strong. Alex Zukin: And maybe just squeezing quick one in for John. On cash flow, well ahead of our estimates here for the second quarter, what's the right way? What's driving that? Is that just as simple as strong collections on larger deals? And thinking through the year, obviously, we're not guiding or updating guidance, but just anything to think through the net new ways to look at the free cash flow margin of the business and the growth of free cash flows? John Murphy: Yeah, sure. Yeah, we certainly were pleased to deliver numbers like that. We had some timing of payments, for sure. And as you saw, our DSO really dropped pretty significantly quarter-to-quarter. So all that really contributed to it, as well as the timing of some large payments , as well as timing of when we have some dispersions as well. So it's really -- overall just great performance for the company. And sometimes you'll see a little bit of a shift quarter-to-quarter, but we're certainly given the capability of the company and the operating leverage in the model where we are generating a lot of cash right now. Alex Zukin: Got it. Thank you guys. John Murphy: You bet. Operator: And next we'll go to Saket Kalia from Barclays. Your line is open. Saket Kalia: Hi, guys, thanks for taking my question here. Shantanu, maybe for you to go back to the Creative business. Can you just anecdotally talk about any difference in product mix, specifically? I guess, as more potential users got back to work, including Creative professionals, did you see any change in the mix of single apps versus all app subscriptions perhaps? Shantanu Narayen: Saket, I think we saw strength across all of the businesses. I would say that the single app business, as you know, is a really great initial funnel for us to drive the business. And so we continue to see new adoption as it relates to the single app. And then, from a revenue perspective, think of it as, the single apps is probably half the business in the quarter. And then, we use that as a funnel to drive to the all apps. So I wouldn't say there was really a dramatic difference between Q1 and Q2, I think we just continue to see the trend of attracting new customers. And then from a revenue point of view, certainly, we believe that the Creative Cloud all apps is where we both derive value for our customers and drive more ARR for us long-term. Saket Kalia: Got it. Very helpful. Thanks, guys. Shantanu Narayen: Thank you. Operator: Next, we'll go to Tyler Radke from Citi. Your line is open. Tyler Radke: Hey, thanks for taking my question. I wanted to ask you about the Digital Experience side of the business. I think if you, depending on your assumption for Workfront and you kind of normalized for the extra week in the quarter last quarter, it showed a nice kind of reacceleration in that business. Could you just help us understand how you're expecting that pace of reacceleration to play out throughout the rest of the year? And then, kind of where your longer-term aspirational targets on where you'd like to see that growth rate of the business? Shantanu Narayen: Well, Tyler, the way I would first start off by answering that question is by talking about the TAM, where I think we keep talking about how big TAM that is, for the entire business. And so, when you have the kind of $80 billion plus dollar TAM that we have, we just continue to be really optimistic about that business. And, from my perspective, we have the largest delever that we had. And if you look at the DX business, it's about focus on transformational accounts across all deal bands, as well as different segmentation of the market. We tend to think of the corporate market, commercial market and the strategic markets, we're seeing strength across those particular businesses. And as I mentioned earlier to a previous question, the ability to convert bookings into revenue and to upsell them to more, but what we've done with the experience platform and the ability to have all of the new services built on that, it's really very unique in the industry, because that's sort of how we look at it. And so, you should expect to see, again, Q4 be sort of the strongest close that typically happens in enterprise software. And, we're clearly on track to exceed the target for DX for the entire year, when you look at our performance in the first-half and our guide for Q3, and John's comment about expecting Q4 to be seasonally strong. Tyler Radke: Great. And if I could just sneak in another question, I wanted to ask you just broadly, I know, you haven't raised price in a while, and you're obviously pretty sensitive of that during the pandemic. But just as you think of things reopening and obviously some concerns around there, around an inflationary environment, just curious how your conversations regarding prices evolved over the last three months? Thank you. Shantanu Narayen: From our perspective, what is most exciting about the Creative Cloud and the Document Cloud business, assuming Tyler that your question is about those two parts of the business is, it's really new customer acquisition, that's really been the driver of that entire business. And we're doing that across different offerings. We're doing that across different geographies. I think the value that we provide to customers, it doesn't matter whether it's an inflationary economy or not, we continue to believe that we're deriving tremendous value for our customers. And so the conversations that happen around Adobe are around the product roadmap and innovation and attracting new customers way more than trying to, at this point, look at a price optimization, and so we have a massive TAM ahead of us. That's really the focus. Tyler Radke: Thank you. Operator: And next we'll go to Brent Thill from Jefferies. Your line is open. Brent Thill: Hi, Shantanu, on the digital experience business, many of your SI partners have been commenting that there are capacity constrained that their utilization rates are, in their words through the roof. I'm curious if you're running into constraints on the implementation side, what you're seeing to offset that? Is that more of a random data point? Are you seeing that across the board from some of the SI partners? Shantanu Narayen: I would say, Brent that clearly the demand for our solutions and expertise, whether it's on content and commerce, whether it's around data and insights, whether it's around the new workflow stuff that we've done, what's exciting for us is that there's a lot of demand on the ecosystem to have us help them with training. I think you'll periodically see some of them feel like they're capacity constrained and that's a little bit more as a result of the war for talent. But overall, I think, we will continue to help support them in any way. And I think net-net it’s a good sign for the business. On the product side, we are going to really make sure that we continue to make it easier to provision, easier to use, easier to get value. And we've been seeing some good customer sentiment associated with our work on that front. So hopefully, that's an isolated incident as it relates to that SI partners ability to get it. But it's certainly true as it relates to the overall market and the ability and the interest in our solution. So I think that part is certainly true. Brent Thill: Quick follow-up for John, just on the second-half margins. As things reopen, how are you thinking about this? I mean, you are this quarter about a point away from your all time quarterly high and out margin. Do things have to come back in a little bit over time, given the reinvest in the opening world or not? John Murphy: Yeah. Thanks, Brent. Yeah, we definitely think it will come down slightly in Q3 and Q4, as we open up. I mean, we're continuing to invest, as we talked about, we're hiring in R&D. We're definitely investing in sales and variable marketing to really drive the business and execute against the huge TAMs that we have across all three businesses. So with the momentum that we have in the business world, we will make sure that we capitalize on that momentum and invest to be able to capture it. But certainly, as things are opening up, we'll see those expenses come back online, as we more people, it'll get phased in reentry approach for us through Q3 and Q4. But certainly, business travel will start to pick up as well. Shantanu Narayen: And Brent, maybe I'll just add, when we look at some of the key new categories that we're continuing to invest in, and you're seeing the results associated with it, I mean, to your question about the Real-Time CDP and the associated services, Sign, Stock, Mobile and our mobile offerings, we remarked also about 3D&I and specialist offerings associated with that. And so, it really behooves us to continue to as we always have judiciously, invest in marketing to continue to attract new customers to the platform, which will again, as John said, be seen on the sales and marketing expense. But net-net, I mean, we're really excited about the growth that we're seeing. John Murphy: Yeah, and just to think about Shantanu I mean year-over-year you are going to see margin expansion went even above what our original targets were. Thanks. Operator: And next we'll go to Kash Rangan from Goldman Sachs. Your line is open. Kash Rangan: Hi, thank you very much. Congratulations to the Adobe team and spectacular results. Shantanu, I want to just go back to Creative TAM, just the topic that continues to fascinate me. I mean, seven, eight years into the transition, the Creative business is as big as it can be $10 billion, nearly 100 and growing 22% to 24%. As you unfold the layers of the Creative market, what is it that you finding that might have surprised you? And could we see that TAM for Creative as the business unfolds even larger than your original expectations? And also as a subtext to that you think address video and how video is shaping up? Now I remember once you said that video could be as largest photo oriented business, any thoughts there would be great. And also if you have any thoughts on what might be David's involvement with the Creative business? And should we expect to see any refinements enhancements modifications of the strategy on the Digital Media front with David coming back on board? Thank you so much. Congrats. Shantanu Narayen: Thanks, Kash. And I love the way all of you so far have been when we say one question, putting in a three part question. But Kash, I think… Kash Rangan: You can take any one. Shantanu Narayen: It's okay. I mean, they're all good questions. And so I think first Kash on the $40 billion plus TAM as you know, we have clearly transitioned the business from Creative Cloud focused customer, to just being a Creative Cloud, the communicators, the services that we've added associated with Stock photography and Sign. And, I think we continue to have very exciting opportunities in terms of continuing to expand that TAM. And I think it all stems from design and creativity has never been more important, right. We talked about how it's the golden age of design and creativity. But for you, as a consumer, whether you're interacting with a screen at a terminal or in a retail store, or how you order something, I mean, it's all about content creation. And when you think about how much content we've all consumed in the pandemic at home, it's just gone through the roof. And we announced the partnership with Netflix, and what we're doing with Khan Academy to make sure content creation is as seamless and productive. So I think that's driving it. And people love to say we want to be in the content and design business to personalize it, as well as a career. So I would say that's the first thing that we're certainly seeing. International expansion, we've talked about how we continue to focus on international markets. And, it originally started with dealing with piracy, but across the small and medium business TAM, as those companies are also creating a marketplace for themselves with our content management solutions, our commerce solutions, content velocity is critical there. So I think all those are clearly tailwinds for the ever increasing TAM. I think we increased it from $31 billion to $41 billion when we talked about it at the Next FA meeting. And we'll certainly update that when we have our Next. I think, as it relates to David, I'm really excited. As I said, David played a significant role in the introduction of Creative Cloud when he was here. And I think the fact that we were able to excite them and recruit them back, just I think speaks to the tremendous opportunity that he also sees for the business. And from my point of view, we have all of these unicorns within the Creative Cloud. And I'm looking to partner with David, whether it's expanding on our enterprise footprint, whether it's continuing to make sure that we get the opportunity around Sign addressed, what we are doing associated with the mobile offerings. I mean, each one of these is a large business by itself and having somebody of his caliber to continue to work with, Scott on the product side and Abhay on the Document Cloud side, it's great to have that kind of bench when we have the kind of opportunity that we have. So hopefully, that answers the question around David as well, Kash. Kash Rangan: Brilliant. Thank you so much. Operator: Next we'll go to Sterling Auty from JP Morgan. Your line is open. Sterling Auty: Yeah, thanks. Hi, guys. Shantanu, I thought your comments about Chuck were spot on. I'm sure he'd be very proud to see the performance of the company and directionally where it's headed. I'm kind of curious on the Digital Experience side, in terms of the product roadmap and changes and improvements that you made last year, how those have been resonating with customers currently? And are there any key new innovation milestones that we should be looking for, that could further improve the growth in that business over the coming couple of quarters? Shantanu Narayen: Thanks for your comments on Chuck, Sterling. A number of you I know have written to me, which I appreciate the impact that each one of you also felt when you interacted with Chuck. So, I really have appreciated all of those comments. As it relates to the customer experience management questions, Sterling, I think we're in the really early innings. We have some tremendous ideas ahead of us and with Anil Chakravarthy, I'll touch on a couple. I mean, the Real-Time Customer Data Platform is just really the infrastructure for every engagement that a customer has. We touched on the Journey Optimizer, which is think about optimizing the customer journey across outbound and inbound customer touchpoints, both in physical and electronic. I mean that’s just a massive opportunity in terms of communicating, whether it's by email, whether it's SMS, whether it's any of these new platforms that emerge. The Customer Journey Analytics, my perspective on Customer Journey Analytics is, we used to do the fantastic job on web analytics, but this is increasingly becoming what is the analytics across all of the different online and offline data. And it's the way you run a business. And we're living proof of, when we talk about our DDOM, how we can use that, so I think the Customer Journey Analytics is also in terms of the ideas that we have on its infancy. And maybe the last one I'll touch on, is what we've been previewing in terms of this marketing system of record and workflow. Trillions are being spent in marketing and the process associated with rolling out those campaigns, understanding the efficacy of those campaigns, making those campaigns international. I think that all of that is really, really, ahead of us in terms of what we can do. So we're very excited. And for all of these companies, as they have to transition with what's happening in browsers, and dealing with a first-party data world or dealing with privacy concerns, all of that, frankly, is opportunities for us because we step up and enable them to engage with their customers and focus on their product offering rather than all this other stuff, because we know how to do that well. Sterling Auty: That makes sense. Thank you. Shantanu Narayen: One last thing, maybe on that is the B2B. I think we've always -- most people talk about this and think about the B2C business, Sterling, which is, yeah, they understand travel and hospitality, they understand retail, they understand banking, but this is now happening, where it doesn't matter what business you're in. The ability to drive from leads to revenue for a B2B business is also digital. I mean, if you're a company in the pharma industry, and you're not able to go visit doctors, and talk to them about the innovation that you're doing, it’s going to move digital. So I think there's just so much on that particular front. Sterling Auty: Thank you. Operator: And next, we have Brad Sills from Bank of America Securities. Your line is open. Brad Sills: Oh, great. Thanks, guys, for taking my question. And congratulations on a nice quarter here. I just wanted to ask a question on reopening. As you look towards, as we look towards reopening in U.S. and North America and Europe, what impact do you think that's going to have on the Digital Media businesses? It's an accelerant, do you think? Or, and also a Digital Experience what are your thoughts on that? Thank you. Shantanu Narayen: I think they're really tied to the macro-economic environments. And I think you're seeing that the return to work, the macro-economic environment is coming back stronger than it's been across all of the customer segments. And for us, we don't view ourselves as in terms of the solutions we're providing these digital are not a stay at home or work kind of solution. They're just mission-critical, irrespective of which you have. And so, what I think we'll see is that, as people come back to work, the small and medium businesses will recognize that it's an opportunity for them to engage. So I think you'll see more investment there. I think you'll see certainly, as Europe and other parts of those economy open up that'll help. I think Japan, the level of vaccination is low, so I think as they come back to work, that's only going to lead to more optimism. And so I think when you think about consumer confidence, and you think about businesses want to invest, I think both of those are only going to be helped by a return to normalcy and a return to work. That's sort of my perspective. Brad Sills: Thank you so much, Shantanu. Shantanu Narayen: Thank you. Operator: And next we have Jay Vleeschhouwer from Griffin Securities. Your line is open. Jay Vleeschhouwer: Thank you. Good evening, Shantanu, you mentioned summit, and it was clear from the conference that there were multiple internal initiatives you're working on that would seem very likely to have important implications for you over the next number of years. And since you didn't refer to them directly, perhaps you could comment on some of those, including, for example, what was referred to as your quote future creative stack, additionally, project Firefly and your API strategy, some very interesting references to your Adobe commerce merchant services, including payments and some other things you're working on? And then lastly, the build out of ATM is a cloud service globally targeted for this year. So those are some pretty interesting things from the conference of perhaps you could talk about? And then for the follow-up, in answer to an earlier question you referred to ‘war for talent.’ And in your case, you've had a V-shaped recovery in terms of your own job openings. You added an unusually large number of people in a non-acquisition quarter. Maybe for John, you could talk about whether you think you could or should continue to increase your headcount at the same pace as in Q2. Shantanu Narayen: Thanks for the question, Jay. As you know, I can wax eloquent about product stuff for a long time, but let me touch on at least the two ones that you did. I think as it related to the cloud-based content management, the intent is very straightforward, which is how do you transition anybody who wishes to self-provision a cloud-based content offering. And think about, if you're a small and medium business, or if you're a large company trying to do a product campaign, you need to get a website, you need to get it localized, you need to get it up and running, you need to be able to do commerce. And so the fact that we've got this easy to provision cloud-based content management, which is the leader in the category, but in addition to that, as you mentioned, the APIs now so people can actually embed this APIs that we have for our content management solution directly. So we're very excited about that. We mentioned last quarter that it saw significant adoption. And so I think that will continue to be a driver for the business. I think, as it relates to your other question around what we are doing on the content stack, we've always mentioned that, for us content and data are the two areas where we differentiate ourselves. The asset management problem is still a problem where we have a significant amount of innovation that we're continuing to deliver. And so, we're really excited. I mean, net-net, I think Anil and the product team on the DX side, have outlined a number of initiatives. Other companies talk about a lot of the stuff, but they don't have their products integrated. They don't have the ability to seamlessly provision and so I think that's where we are going to continue to focus. And maybe an underappreciated area Jay is how easy, these are now to set up and provision and for practitioners of this business, to be really able to do it. I think your second question is a very interesting one, which is you're absolutely right, the merchant services ecosystem that Magento has, we've actually done a really good job of building that out. I mean, certainly, companies like PayPal that we've talked about, we've talked about what we can do with FedEx. More recently, there are a number of other such initiatives that are underway, some of which we're not at liberty to talk about, right yet. But I think, dealing with payments, dealing with shipping, dealing with working capital, a lot of interesting ideas where we're very well-positioned to both deliver value as well as to monetize it. John Murphy: And Jay, on the headcount commentary, just to I mean we certainly have a number of positions open, that we're actively recruiting against. But we're committed to investing to be able to capture the larger opportunity. So we're going to continue to hire in for innovation and we're going to continue to invest in sales headcount as well as leverage our ability with variable marketing to really drive performance. So, I don't think this is the time to pull back given the momentum in the business. Jay Vleeschhouwer: Thanks, Shantanu. Thanks, John. Shantanu Narayen: Thanks, Jay. Operator: And next we'll go to Keith Bachman from Bank of Montreal. Your line is open. Keith Bachman: Hi, many thanks. First, I wanted to ask a clarification and then Shantanu a question. John, can you give us the contribution of Workfront this quarter? And then secondly for Shantanu, I wanted to go back to the Experience Cloud. And feedback that we've recently gotten is very positive on the Real-Time CDP and the Customer Journey Analytics, as you mentioned. I'm trying to go back to what's the potential growth rate here. So A, was Experience Cloud you think impacted more during COVID than other parts of the business? Because I'm trying to understand whether there might be a harder snap back. And then B, when you think about the growth potential here, Gartner comes out with some numbers that areas in the Experience Cloud have grown 15%. Your own TAM analysis that you put out suggested the market in ‘23 growth is more like 25%? How do you think about the business between those two potential growth rates? Shantanu Narayen: Yeah, the way I would answer the question, first, on the Workfront stuff, I mean, it becomes -- we, I think, do a great job of talking to you about how it's going on the integration. And it's going really well. We don't break it out after a while, because it's part of so many of these large transformational deals, as well as integrated into other solutions. But Workfront is going really well, it's the basis for a lot of the workflow that we're doing across each of our solutions. And we're on track to beat the targets that we gave for Workfront. So I do want to say that that went well. I think as it relates to the overall TAM, which was your second question, we look at it as it's $80 billion plus, so there's plenty of available and I think a lot of legacy software is going to get rolled out. And so for us, it's not just about what the growth rate is in that market, people are going to recognize that having modern architecture for dealing with consumer engagement is going to become a bigger and bigger imperative. And, frankly, the smart companies are opening up their budgets to start to invest in it sooner rather than later, as we said on B2B and B2C. So, we're really pleased with the 20% plus growth that we're seeing, 25 points of subscription revenue growth, we think is really good. We want to continue to focus on subscription revenue as the true measure of that business. And I think as we continue to deliver on the innovation and product roadmap, I think, we would hope to continue to see those growth rates, even as the business grows much larger. Keith Bachman: Okay. Thank you, Shantanu. Shantanu Narayen: Thank you. Jonathan Vaas: Operator, we're coming up on the top of the hour. We'll take one more question, please. Operator: Thank you. Our last question comes from Gregg Moskowitz from Mizuho. Your line is open. Gregg Moskowitz: Great. Thank you for taking the questions. Shantanu, the Document Cloud enterprise bookings growth up more than 60% year-over-year, obviously really impressive. What would you primarily attribute that to? And then just for John quickly following another upside quarter with an accelerated recovery in SMB, would you say that you have returned to pre-pandemic levels? Shantanu Narayen: I think as it relates to your first question around Document Cloud, I mean, again, there isn't a business that is not saying, hey, how do we help automate inefficient paper-based processes. And so the value proposition of the PDF file format, the value proposition of Acrobat, as an essential productivity tool for knowledge workers, the availability of Sign, what we're doing with forms and embedded payments, I think it's the combination of all of that, whether you're, again, somebody trying to deliver vaccines for employees, or somebody trying to create a new travel authorization or expense. I mean, documents are the fundamental currency of modern business and automating that only has value. And I think our team has done a good job. We don't go to market saying, here's a Document Cloud solution, or here's an Experience Cloud solution. We go and saying, here's the use case for if you're in travel and hospitality or retail, or financial services, or pharma. And I would say, government and healthcare have also become larger customers of these kinds of solutions, because of the necessity for regulated industries, who previously may have relied on paper to say, you know what we need to get into the modern era and deal with electronic documents. So I would say, those are all the reasons and good execution, clearly on the part of our team, as we're selling increasingly at a much higher level in all of these companies. I'll let John speak and then I'll come for the close, given this is the last question. John Murphy: Great. Thanks, Shantanu. Thanks, Gregg. Yeah, we've been kind of talking about the last couple quarters, the gradual recovery of the SMB segment, which was hit so severely when the pandemic hit last year. And we saw that continue here in Q2, and really kind of reach that pre-pandemic level of conversion, retention, at least for sure in the U.S., and there's just tons of opportunity now as the rest of the world begins to open up as well for that to continue to improve. Gregg Moskowitz: Very helpful. Thank you. John Murphy: You bet. Shantanu Narayen: And thank you all for joining us. I think from my perspective, I'm really pleased with our performance in Q2. It was an outstanding quarter. And to the question that was asked earlier, with many parts of the world returning to some sense of normalcy, that should only be good for our business, because digital is this incredible tailwind where it's just a one way street in terms of people wanting to invest. We do expect, therefore, a slight seasonality associated with our business. But we definitely have an expectation of a strong finish. And if you look at our first-half performance, if you look at our targets for Q3, and the belief in the seasonally strong Q4 finish, that's going to be another outstanding year where we are going to exceed a lot of the targets that we talked about, if not all, at the beginning of the year. We're driving bookings, we're driving revenue performance from bookings as a result of making sure people get value for it. We're driving a lot of new businesses that have become material in the company, and so the breadth of our portfolio is impressive, because digital is not just a nice to have, it's become super critical. And as I've always said, having three areas of explosive growth puts us in really rarefied atmosphere. And growing 20% plus on the top-line growing the bottom line, as impressively as we have with strong cash flow, I think really demonstrates how we're driving value for our customers and value for our shareholders. So, thank you for joining us today and have a great summer. With that, I'll pass it back to Jonathan. Jonathan Vaas: Thanks, Shantanu, and thank you everyone for joining. This now concludes the call. Operator: And that does conclude our call for today. Thank you for your participation. You may now disconnect.
Adobe Shares Slip 12% as Investors Seek More Clarity on AI Monetization
Adobe (NASDAQ:ADBE) saw its stock drop over 12% intra-day today after delivering a quarterly outlook that met expectations but failed to spark enthusiasm among investors. While the company’s latest financial results were broadly in line with Wall Street projections, analysts noted that they did little to strengthen the overall investment case for the stock.
A key focal point for Adobe remains its artificial intelligence (AI) strategy, which is seen as both a competitive advantage and a response to emerging threats from smaller, more agile rivals. While the company has integrated AI across its product suite, investors are eager for clearer guidance on when these efforts will translate into meaningful revenue growth.
Despite concerns about competition, some analysts argue that Adobe’s AI-driven revenue potential is being undervalued. Mizuho analysts believe that as AI monetization ramps up, its impact will become more visible in the second half of the year. They pointed to AI-related recurring revenue, which includes tools like Acrobat AI Assistant and GenStudio for Performance Marketing, reaching $125 million by the end of the first quarter. Company executives expect this figure to double by the end of fiscal 2025, reinforcing the long-term growth trajectory.
Adobe reported adjusted earnings per share of $5.08 on revenue of $5.71 billion, surpassing analysts' expectations of $4.97 EPS and $5.66 billion in revenue. For the upcoming quarter, the company forecasted revenue between $5.77 billion and $5.82 billion, aligning with consensus estimates. Its full-year guidance of $23.30 billion to $23.55 billion also remained steady, closely matching market expectations.
Adobe Inc. (NASDAQ:ADBE): Navigating Market Expectations and AI Monetization Challenges
- The consensus price target for Adobe Inc. (NASDAQ:ADBE) has decreased over the past year, indicating changing analyst expectations.
- Adobe faces challenges in its AI monetization strategy, affecting its pricing model compared to competitors.
- Despite market challenges, Adobe's strong fundamentals and subscription-based model present a solid investment opportunity.
Adobe Inc. (NASDAQ:ADBE) is a leading software company known for its digital media and digital experience solutions. Its flagship product, Creative Cloud, is widely used by content creators and enterprises. Over the past year, Adobe's consensus price target has seen fluctuations, reflecting changing analyst expectations. Last month, the average price target was $557.5, down from $560 last quarter and $610.05 last year.
The decrease in Adobe's consensus price target suggests analysts are adjusting their expectations, possibly due to market conditions and company performance. Adobe faces challenges with its AI monetization strategy, as highlighted by the Investment Committee. The company's approach of offering free AI adoption delays revenue capture, while competitors charge for AI add-ons, affecting Adobe's pricing model.
Adobe is set to report its earnings this week, alongside Oracle, as highlighted by the Investment Committee. Analyst Gregg Moskowitz from Mizuho Securities has set a price target of $530 for Adobe, indicating a cautious yet positive outlook. Investors are closely monitoring Adobe's performance, especially given the mixed signals in the upcoming earnings preview, with tight estimates for both EPS and revenue.
Despite these challenges, Adobe's subscription-based model and strong fundamentals make it a solid investment opportunity. The company's comprehensive software suite and seamless cloud integration offer a competitive advantage. Adobe's valuation is considered reasonable, with forward P/E ratios and price/free cash flow multiples aligning well with sector averages, making it an attractive entry point for investors.
Citi Lowers Adobe Price Target Ahead of Q1 Earnings Announcement
Adobe (NASDAQ:ADBE) shares fell around 2% intra-day today after Citi analysts reduced the price target for the stock to $490 from $551 while maintaining a Neutral rating, citing concerns over potential near-term headwinds in the company’s growth trajectory.
The analysts expressed caution ahead of Adobe’s fiscal Q1 earnings report on March 12, noting weaker outlooks from CRM and other front-office software providers. While Adobe’s valuation appears less demanding compared to its large-cap peers, uncertainties surrounding pricing dynamics and paid user acquisition remain key factors to watch.
Recent price adjustments to flagship applications could support revenue growth, but softer Creative Cloud web traffic suggests challenges in attracting new paid users. As a result, Adobe’s shares may continue to trade within a narrow range until the company demonstrates stronger net new annual recurring revenue (NNARR) trends and clearer monetization of generative AI initiatives.
The revised price target reflects slightly lowered earnings estimates and a reduced valuation framework, with an implied 24.6x enterprise value to free cash flow multiple, compared to 33x for large-cap tech peers. Investors are likely to seek more substantial AI-driven revenue growth before sentiment around Adobe meaningfully improves.
Adobe Inc. (NASDAQ:ADBE) Gains Positive Sentiment from Wall Street and High-Profile Transactions
- Adobe Inc. (NASDAQ:ADBE) receives strong buy recommendations from analysts, indicating a positive outlook.
- Marjorie Taylor Greene's recent purchase transaction aligns with the optimistic sentiment surrounding Adobe.
- Adobe's significant market capitalization and active trading volume highlight its prominence in the tech industry.
Adobe Inc. (NASDAQ:ADBE) is a leading software company known for its creative and digital marketing solutions. The company offers a wide range of products, including Adobe Photoshop, Adobe Illustrator, and Adobe Acrobat, which are widely used by professionals and businesses worldwide. Adobe competes with other tech giants like Microsoft and Salesforce in the digital space.
On February 12, 2025, Marjorie Taylor Greene made a purchase transaction involving Adobe shares. This transaction aligns with the positive sentiment surrounding Adobe, as Wall Street analysts show optimism towards the company. Adobe's average brokerage recommendation (ABR) is 1.82, indicating a favorable outlook leaning towards a Strong Buy.
Out of 34 brokerage firms, 21 have given Adobe a Strong Buy recommendation, while one has rated it as a Buy. These ratings collectively account for nearly 64.7% of all recommendations, highlighting strong positive sentiment among analysts. This optimism is reflected in Adobe's current trading price of $460.16 on the NASDAQ, with a slight increase of 0.20% today.
Adobe's stock has experienced a range of trading activity, with today's low at $458 and a high of $464.99. Over the past year, the stock has reached a high of $587.75 and a low of $403.75. The company has a substantial market capitalization of approximately $200.31 billion, indicating its significant presence in the market.
Today's trading volume for Adobe stands at 2,622,973 shares, showcasing active investor interest. The positive analyst recommendations and Marjorie Taylor Greene's recent purchase transaction suggest confidence in Adobe's future performance, making it a stock to watch in the tech industry.
Adobe Inc. (NASDAQ: ADBE) Stock Update and Financial Outlook
- Adobe Inc. (NASDAQ:ADBE) Senior Vice President and Chief Accounting Officer, Jillian Forusz, sold 334 shares at $435.83 each, indicating potential insider perspectives on the stock's value.
- The company's stock has experienced a decline of 2.5% over the past month and over 30% in the past year, underperforming against industry benchmarks.
- Adobe projects its Digital Media Annual Recurring Revenue to grow by approximately 11%, with total revenues expected to range between $23.30 billion and $23.55 billion for fiscal 2025.
Adobe Inc. (NASDAQ:ADBE) is a leading software company renowned for its creative and digital media solutions, including popular products like Adobe Photoshop, Illustrator, and Acrobat. These tools are essential for professionals and businesses across various industries. Despite its strong market presence, Adobe faces stiff competition from entities like Microsoft-backed OpenAI, particularly in the Generative AI space.
On January 28, 2025, Jillian Forusz, Adobe's Senior Vice President and Chief Accounting Officer, executed a sale of 334 shares of Adobe's common stock at $435.83 each. This transaction reduced her holdings to approximately 2,685 shares. This sale occurred amidst a period where Adobe's stock has seen a decline of 2.5% over the past month, as reported by Zacks Investment Research. This performance contrasts with the Zacks S&P 500 composite's increase of 1.1%.
Over the past year, Adobe's stock has plummeted by more than 30%, significantly underperforming when compared to the Zacks Computer and Technology sector's 28.5% return and the Zacks Computer Software industry's 14.2% gain. Despite these challenges, Adobe continues to witness strong demand for its creative products and an expanding customer base. However, the emergence of more affordable and AI-driven tools has contributed to a slowdown in revenue growth.
For fiscal 2025, Adobe has set ambitious targets, projecting its Digital Media Annual Recurring Revenue to grow by approximately 11%, with segment revenues expected to be between $17.25 billion and $17.40 billion. This forecast suggests a 9% growth at the midpoint over fiscal 2024. Adobe's strategic focus is increasingly shifting towards enhancing AI user engagement, moving away from monetization strategies heavily reliant on pricing.
Adobe anticipates its total revenues to be in the range of $23.30 billion to $23.55 billion for fiscal 2025, marking an increase from $21.51 billion in fiscal 2024. However, the company faces headwinds such as unfavorable foreign exchange rates. Currently, Adobe's stock is trading at $442.84, with a market capitalization of approximately $192.77 billion. The stock's price has seen fluctuations between $431.64 and $445.81 during the trading day, reflecting a 0.97% rise.
Marjorie Taylor Greene Invests in Adobe Inc. (NASDAQ:ADBE)
- Adobe Inc. (NASDAQ:ADBE) leverages its product variety and AI integration to enhance user experience and market share.
- The company's strong financial performance in FY2024, with revenue increasing by 11%, adjusted EBIT rising by 16%, and adjusted EPS growing by 25%, indicates robust growth potential.
- Despite a 27% decline in stock price over the past year due to AI-driven market disruptions, Adobe's current valuation presents an appealing investment opportunity.
On December 24, 2024, Marjorie Taylor Greene, representing Georgia's 14th district, participated in a purchase transaction involving shares of Adobe Inc. (NASDAQ:ADBE). Adobe is a leading software company known for its digital media and experience solutions. It competes with companies like Microsoft and Salesforce in the digital experience market.
Adobe Inc. is strategically leveraging its extensive product variety and quality, particularly in the digital media and experience segments, to offer unique marketing solutions. This approach aids in retaining current users and expanding its market share by attracting new users. Adobe's focus on AI integration and personalized solutions is designed to enhance monetization and optimize margins, supporting long-term growth and market expansion throughout the user funnel.
Adobe's robust financial performance and efficient operations suggest it is well-positioned for ongoing growth, even in the face of recent share sell-offs. The company's fiscal year 2024 Q4 results surpassed expectations. However, the stock experienced a decline due to lowered guidance and concerns regarding the profitability of its AI investments. Currently, Adobe's valuation is appealing as it trades below its historical averages.
Adobe experienced a robust financial performance in FY2024, with revenue increasing by 11%, adjusted EBIT rising by 16%, and adjusted EPS growing by 25%. Despite these positive financial metrics, Adobe's stock price fell by 27% over the past year. The decline in stock value is attributed to the disruption caused by AI-driven text-to-image and video tools, which are impacting the lower-end segment of the content creation market.
Adobe Inc. (NASDAQ:ADBE) is currently trading at $444.71 on the NASDAQ. The stock has experienced a slight decrease of 0.40%, with a change of $1.77. During the day, the stock has fluctuated between a low of $438.57 and a high of $444.80. Over the past year, Adobe's stock has reached a high of $638.25 and a low of $432.47. The company's market capitalization stands at approximately $195.76 billion, with a trading volume of 1,177,368 shares.
Adobe Beats Q4 Estimates, But Shares Drop 12% on Weak Revenue Outlook
Adobe (NASDAQ:ADBE) delivered strong fourth-quarter results, surpassing analyst expectations for earnings and revenue, yet a softer revenue outlook for the coming periods caused its stock to slide over 12% intra-day today.
For the fiscal fourth quarter, Adobe reported adjusted earnings per share of $4.81 on revenue of $5.61 billion, both ahead of market estimates, which had forecast EPS of $4.67 on revenue of $5.54 billion. The company’s net new digital media annualized recurring revenue reached $578 million, while its digital experience segment saw revenue grow 10% year-over-year to $1.40 billion.
Adobe’s total remaining performance obligations (RPOs) climbed to $19.96 billion, reflecting a 16% year-over-year increase and slightly accelerating from the 15% growth posted in the prior quarter.
However, the company’s guidance for fiscal Q1 raised concerns among investors. While adjusted EPS was forecasted between $4.95 and $5.00, slightly ahead of the $4.94 estimate, revenue was guided between $5.63 billion and $5.68 billion, falling short of the $5.72 billion consensus.
Looking ahead to fiscal 2025, Adobe projected adjusted earnings per share in the range of $20.20 to $20.50 and revenue between $23.30 billion and $23.55 billion. These forecasts came in below analyst expectations of $20.53 EPS and $23.80 billion in revenue. The revenue outlook implied a growth rate of approximately 9%, or about 10% on a constant currency basis.
