Adobe Inc. (ADBE) on Q2 2023 Results - Earnings Call Transcript

Operator: Good day, and welcome to the Q2 FY '23 Adobe Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jonathan Vaas, Vice President of Investor Relations. Please go ahead. Jonathan Vaas: Good afternoon and thank you for joining us. With me on the call today are Shantanu Narayen, Adobe's Chair and CEO; David Wadhwani, President of Digital Media; Anil Chakravarthy, President of Digital Experience; and Dan Durn, Executive Vice President and CFO. On this call, which is being recorded, we will discuss Adobe's second quarter fiscal year 2023 financial results. You can find our press release as well as PDFs of our prepared remarks and financial results on Adobe's Investor Relations website. The information discussed on this call, including our financial targets and product plans, is as of today, June 15, and contains forward-looking statements that involve risks, uncertainty and assumptions. Actual results may differ materially from those set forth in these statements. For a discussion of these risks, you should review the factors discussed in today's press release and in Adobe's SEC filings. On this call, we will discuss GAAP and non-GAAP financial measures. Our reported results include GAAP growth rates as well as constant currency rates. During this presentation, Adobe's executives will refer to constant currency growth rates, unless otherwise stated. Reconciliations are available in our earnings release and on Adobe's Investor Relations website. I will now turn the call over to Shantanu. Shantanu Narayen: Thanks, Jonathan. Good afternoon and thank you for joining us. Adobe had an outstanding quarter, achieving record revenue of $4.82 billion, representing 13% year-over-year growth. GAAP earnings per share for the quarter was $2.82, and non-GAAP earnings per share was $3.91. Our results demonstrate strong demand across Creative Cloud, Document Cloud and Experience Cloud with particular strength in Digital Media ARR. Adobe's mission to change the world through personalized digital experiences is more critical than ever as digital continues to rapidly transform work, life and play. Our groundbreaking innovations, including the new Adobe Express, the launch of Firefly, our family of creative generative AI models, co-pilot functionality in our creative applications, including Photoshop and Illustrator, AI-powered advancements in Acrobat; a new product analytics solution and the latest capabilities in real-time CDP are empowering an ever-expanding customer base to imagine, create and deliver standout content and experiences. We're executing against our strategy to unleash creativity for all, accelerate document productivity and power digital businesses. Every disruptive technology has presented exciting opportunities for Adobe to innovate and increase our addressable market opportunity. This has been true for cloud computing, mobile and AI. We have delivered hundreds of AI innovations through Adobe Sensei such as Neural Filters in Photoshop, Liquid Mode in Acrobat and Customer AI in Adobe Experience Platform. Our ongoing R&D investments have enabled a rapid development and deployment of Firefly, our generative AI technology. We believe generative AI will drive both further accessibility and adoption of our products. Our generative AI strategy focuses on data, models and interfaces. Our rich data sets across creativity, documents and customer experiences, enable us to train models on the highest quality assets. We will build foundation models in the categories where we have deep domain expertise, including imaging, vector, video, documents and marketing. We are bringing generative AI to life as a copilot across our incredible array of interfaces to deliver magic and productivity gains for a broader set of customers. Since its launch in March, Firefly has captured the imagination of the world with over 0.5 billion generations and we're just getting started. Our digital experience business is powering personalized customer engagement for companies around the world, enabling them to drive experience-led growth. We're delivering an innovative product road map and integrating Sensei gen AI services across Experience Cloud. Last week, we hosted a successful EMEA Summit with tremendous excitement from thousands of customers and partners reinforcing that digital is a critical imperative across industries. Adobe's category leadership and mission-critical products will continue to drive our growth. For FY '23, we now expect Creative Cloud and Document Cloud to end the year ahead of our previously issued revenue and ARR targets and Digital Experience to be slightly below our previous annual target given the current enterprise spend environment. As a result of our groundbreaking innovation and continued execution, we are pleased to raise total Adobe annual revenue and EPS targets. David, over to you. David Wadhwani: Thanks, Shantanu, and hello, everyone. Adobe has long had a mission to unleash creativity for all and today, this is more possible than ever through the power of AI. The introduction of the new Adobe Express and Firefly will go down as a seminal moment in our creative history. These innovative products and our generative AI copilot in our flagship applications will extend our leadership in core creative categories such as imaging, design, video, illustration, animation and 3D as well as attract an increasingly expansive global audience. In Q2, we achieved net new creative ARR of $354 million and revenue of $2.85 billion, which grew 14% year-over-year. We could not be more excited about our generative AI road map that will make Adobe products more accessible to an even larger universe of people, while dramatically enhancing productivity for existing customers. Firefly is attracting tremendous customer interest and is highly differentiated in the market. It is being directly integrated into our product workflows as a copilot to accelerate ideation, exploration and the end-to-end production process. Business and innovation highlights include the beta release of Firefly, Adobe's pioneering family of creative generative AI models and adobe.com/firefly, a destination that allows users to generate and refine content. Firefly's first model is trained on Adobe stock images and other openly licensed content designed to generate commercially viable, professional quality content. Firefly powered capabilities seamlessly integrated into Photoshop are catalyzing a new era of creative power and precision. The viral response to Photoshop's new generative fill copilot has been extraordinary across social media platforms. Users have now generated over 0.5 billion assets on the Firefly website and in Photoshop, making these 2 of our most successful beta releases in company history. Building on this innovation, earlier this week, we announced Generative Recolor in Illustrator, which will similarly serve as a generative AI copilot to millions of designers to iterate and transform Vector Art. We also released an all-new Adobe Express with Firefly generative AI capabilities that revolutionizes how everyone, from students to small business owners to marketers and large organizations, creates and share standout content. Adobe Express brings the magic of our technology from Photoshop, Illustrator, Premiere and Acrobat to combine power and precision with speed and ease. The response to the public beta in particular the groundbreaking video editing capabilities has been overwhelmingly positive. The enterprise version of Adobe Express and Firefly will empower every employee in an organization to participate in the creation of content, campaigns and websites in conjunction with Experience Cloud. New AI-powered text-based editing and automatic tone mapping in Premier Pro makes video editors more productive. An expanded Frame.io platform that now supports collaboration across PDFs and images, in addition to video, increases the value of Adobe's Cross-Cloud content supply chain solution. A major Lightroom mobile update that instantly allows you to access photos from Apple iCloud and Android Gallery empowers our growing base of mobile-first and mobile-only users. Continued momentum with our ecosystem of strategic partners drives awareness of our products and top-of-funnel for Adobe. Google announced that Adobe Firefly will be a premier generative AI partner for Bard, powering text to image capabilities. NVIDIA and Adobe announced that we will collaborate on generative AI optimizations across hardware and software. Apple highlighted how Lightroom will empower users to edit photos on the Vision Pro VR headset at WWDC. Momentum across routes to market and customer segments, including key enterprise customer wins, EY, government of the Philippines, NVIDIA, Omnicom, TAFE, New South Wales and WPP. Our generative AI offerings represent additional customer value as well as multiple new monetization opportunities. First, Firefly will be available both as a standalone freemium offering for consumers as well as an enterprise offering announced last week. Second, copilot generative AI functionality within our flagship applications will drive higher ARPUs and retention. Third, subscription credit packs will be made available for customers who need to generate greater amounts of content. Fourth, we will offer developer communities access to Firefly APIs and allow enterprises the ability to create exclusive custom models with their proprietary content. And finally, the industry partnerships as well as Firefly represent exciting new top-of-funnel acquisition opportunities for Express, Creative Cloud and Document Cloud. Our priority for now is to get Firefly broadly adopted, and we will introduce specific pricing later this year. Now turning to the Document Cloud business. PDF has become the de facto standard for the world's unstructured data, and businesses of all sizes are turning to Adobe to help streamline and automate document-based workflows. Adobe Document Cloud offers a comprehensive set of ubiquitous products to accelerate document productivity across every device by seamlessly integrating PDF services into Acrobat. In Q2, we achieved Document Cloud revenue of $659 million, growing 14% year-over-year. We added $116 million of net new Document Cloud ARR with ending ARR growing 22% year-over-year. Business and innovation highlights include, significant growth in Acrobat web monthly active users, driven by searches for Acrobat verbs and further accelerated by an explosion of PDF consumption through our Chrome and Edge extensions; viral adoption of PDF collaboration services, which are both increasing active use among existing users and creating a growth loop to bring new users into the Acrobat ecosystem. Mobile momentum across both App Store downloads as well as documents consumed in liquid mode. New workflows between Acrobat and Express allow users to integrate documents seamlessly into their creative process. Express now has full fidelity PDF import and editing, which allows users to make documents visually stunning; momentum across routes to market and customer segments, including key enterprise customer wins, Boston Consulting Group, Cushman & Wakefield, Novartis, T-Mobile and WPP. Today marks the 30th anniversary of Acrobat, a significant milestone that is both inspiring and humbling. PDF and Acrobat are more relevant today than ever before. We are incredibly proud of how PDF continues to transform the world of digital documents, powering communication and productivity for billions of people every day and we know that the best is yet to come. The pending acquisition of Figma will further expand our addressable market, and we have been delighted to hear from customers, partners and industry analysts who are excited about the benefits that the combination will unlock. We continue to engage in conversations with the Competition and Markets Authority in the U.K., the European Commission and the U.S. Department of Justice as they conduct their regulatory reviews and given the merits of the case, we believe the transaction should close by the end of 2023. Adobe's Digital Media business is on a roll. We're rapidly delivering groundbreaking innovations across Creative Cloud and Document Cloud. Our increasing breadth of offerings is reaching a broader universe of customers, and our incredible go-to-market strength and proven data-driven operating model are propelling the growth of both our emerging and established businesses. Given the momentum, we are raising our net new Digital Media ARR and revenue targets for fiscal '23. I'll now pass it to Anil. Anil Chakravarthy: Thanks, David. Hello, everyone. In Q2, we continued to drive strong growth in our Experience Cloud business, achieving $1.22 billion in revenue. Subscription revenue was $1.07 billion, representing 14% year-over-year growth. Customer interest in the digital experience category remains high. Last week, we were excited to spend time with thousands of customers and partners at EMEA Summit. Businesses of all sizes and industries around the world are increasingly relying on digital channels to engage customers and deliver experience-led growth and they are turning to Adobe as their trusted partner on that journey. Adobe Experience Cloud offers the most comprehensive set of solutions for content and commerce, data insights and audiences, customer journeys and marketing workflows. Built natively on Adobe Experience platform, our real-time customer data platform provides businesses with a single view of their customers' data across every channel. Real-time CDP now delivers over 600 billion predictive insights each year, and customers are creating over 30 trillion audience segments every day. Experience Cloud is now used by 87% of Fortune 100 companies. For example, Prudential Financial uses our cross-cloud offerings to power its end-to-end customer experience management workflows from creating high-impact content with Creative Cloud and Express to delivering personalized customer experiences at scale with Adobe Experience Platform. In addition, Prada is using real-time CDP and Journey optimizer to connect digital and in-store customer experiences in real time while reimagining shopping experiences using Substance 3D. Our vision for Experience Cloud is to deliver personalized experiences at scale, and the power of generative AI accelerates our ability to do that. We are delivering Sensei gen AI innovations to reimagine the work marketers do and how they do it. With Sensei gen AI as their copilot, marketers can generate audiences with high position and design tailored customer journeys for these audiences. They can activate personalized campaigns for their audiences with on-brand visual content created with Adobe Express and Firefly and compelling offers generated by Experience Cloud applications, leveraging real-time customer profiles in AEP. Conversation in natural language interfaces powered by Sensei gen AI will make it significantly easier for any marketer to derive insights from customer journey analytics and apply these insights in real time to optimize their campaigns. These are just a few of the transformational innovations that Sensei gen AI is bringing to Experience Cloud. Business and innovation highlights include strong demand for Adobe Experience platform and native applications with our book of business now exceeding $500 million. This quarter, we unveiled new capabilities in real-time CDP that will enable brands to scale first-party data with look-alike audiences, significantly accelerating the delivery of personalized experiences. Realtime CDP is used by global brands across industries, including DICK'S Sporting Goods, General Motors, Henkel, Major League Baseball, ServiceNow and TSP Bank; the launch of Adobe Product Analytics, which combines customer journey insights with product analytics to drive a new level of product-led growth; a comprehensive content supply chain solution that connects content creation and delivery across Experience Cloud and Creative Cloud to help enterprises effectively manage their content demands. We're working with partners, including Accenture, IBM, Omnicom and Publicis to scale the delivery of content supply chain to our joint customers. Strong demand for Workfront as it rapidly becomes a solution of choice for teams to plan, orchestrate and launch personalized campaigns at scale. Global availability of Adobe Mix Modeler to provide marketers with an AI-powered, self-service solution to accurately measure campaigns across paid, owned and earned channels. New AI innovations in Adobe Experience Manager, that provide real-time content performance data and predictions on which content will perform best by audience segment. Leadership in industry analyst reports, including the IDC Marketscape for retail commerce platforms and a positive rating in Gartner's annual assessment of Adobe's enterprise strategy. Key customer wins, including DSV, ICICI Bank, JPMorgan, Kroger, Omnicom, Royal Canin, ServiceNow, T-Mobile and Volkswagen. While overall demand is strong and win rates remain healthy, as we enter the second half, we are seeing some projects being pushed out in the current enterprise spend environment, which we have reflected in our updated annual targets. In a world where digital has become the predominant channel to reach and engage customers, Adobe is uniquely positioned to keep winning with innovative products that power end-to-end customer experiences and enable enterprises to simultaneously drive growth and profitability. I'll now pass it to Dan. Dan Durn: Thanks, Anil. Today, I'll start by summarizing Adobe's performance in Q2 fiscal 2023, highlighting growth drivers across our businesses, and I'll finish with financial targets. Adobe's Q2 results demonstrate strong demand across a diverse portfolio of products from individuals buying through digital channels to the world's largest enterprises. While we grow existing businesses and deliver world-class profitability, Adobe continues to incubate and invest in groundbreaking new technologies that will change how people work and democratize access to our tools. I couldn't be prouder of how Adobe has navigated the current environment and position the company to win. In Q2, Adobe achieved record revenue of $4.82 billion, which represents 10% year-over-year growth or 13% in constant currency. Business and financial highlights included, GAAP diluted earnings per share of $2.82; and non-GAAP diluted earnings per share of $3.91, Digital Media revenue of $3.51 billion, net new Digital Media ARR of $470 million, Digital Experience revenue of $1.22 billion, cash flows from operations of $2.14 billion, RPO of $15.22 billion exiting the quarter; and repurchasing approximately 2.7 million shares of our stock during the quarter. In our Digital Media segment, we achieved Q2 revenue of $3.51 billion, which represents 10% year-over-year growth or 14% in constant currency. We exited the quarter with $14.14 billion of Digital Media ARR, growing 15% year-over-year in constant currency. We achieved Creative revenue of $2.85 billion, which represents 9% year-over-year growth or 14% in constant currency. We added $354 million of net new creative ARR in Q2, with strong digital demand for our offerings throughout the quarter. Second quarter creative growth drivers included, new user growth across geographies, customer segments and creative offerings driven by targeted campaigns and promotions and utilizing insights from our data-driven operating model, strong traffic and conversion on adobe.com, single app subscriptions, including a strong quarter for imaging driven by Everyone Can Photoshop campaign; strong growth in photography driven by accelerated demand for Lightroom mobile, another strong quarter for Adobe Stock and other emerging businesses with exiting ARR for both Frame.io; and Substance growing greater than 50% year-over-year in constant currency; continued success rolling out our new Acrobat CC offering integrated with Sign capabilities; and success in the enterprise as our creative and collaboration solutions continue to see strong adoption. Adobe achieved Document Cloud revenue of $659 million, which represents 11% year-over-year growth or 14% in constant currency. We added $116 million of net new Document Cloud ARR in the quarter, crossing the $2.5 billion milestone with exiting ARR growing 22% year-over-year in constant currency. Second quarter Document Cloud growth drivers included: strong subscription demand for Acrobat with integrated sign capabilities across customer segments and geographies, driven by targeted offers, DDOM Insights and our Acrobat's Got It campaign, success monetizing new customers through the Acrobat web funnel with monthly active users growing greater than 50% year-over-year as our product-led growth strategy continues to perform well, strength in Acrobat mobile downloads, conversion and engagement with liquid mode usage up over 40% year-over-year, and strength in the enterprise, driven by seat expansion. This quarter perpetual sales accounted for less than 5% of Document Cloud revenue. Turning to our Digital Experience segment. In Q2, we achieved revenue of $1.22 billion, which represents 12% year-over-year growth or 14% in constant currency. Q2 subscription revenue was $1.07 billion, which represents 11% year-over-year growth or 14% in constant currency. Second quarter digital experience growth drivers included: strong demand for our Adobe Experience platform and native applications, including real-time CDP, Customer Journey Analytics and Adobe Journey Optimizer. In Q2, subscription revenue for AEP and apps grew more than 60% year-over-year; strength in content and commerce with AEM as a cloud service, seeing significant book of business growth in Q2; customer interest in our content supply chain solution. The value proposition of seamlessly connecting content creation workflows to customer experience management is resonating with enterprises and is driving accelerated growth for Workfront and our content solutions, continued value realization from our solutions leading to strong retention across our customer segments, and momentum selling transformational deals to large enterprises, adopting our platform and end-to-end suite of applications, including T-Mobile and Omnicom. Adobe's effective tax rate in Q2 was 21.5% on a GAAP basis and 18.5% on a non-GAAP basis, in line with our expectations. RPO exiting the quarter was $15.22 billion, growing 10% year-over-year or 13% when adjusting for a 3% FX headwind. Our ending cash and short-term investment position exiting Q2 was $6.60 billion, and cash flows from operations in the quarter were $2.14 billion. In Q2, we entered into a $1 billion share repurchase agreement, and we currently have $4.15 billion remaining on our $15 billion authorization that was granted in December 2020 and goes through the end of fiscal 2024. In light of the momentum across our business and factoring in current macroeconomic conditions and summer seasonality, for Q3, we're targeting, total Adobe revenue of $4.83 billion to $4.87 billion, Digital Media net new ARR of approximately $410 million, Digital Media segment revenue of $3.55 billion to $3.57 billion, Digital Experience segment revenue of $1.21 billion to $1.23 billion, Digital Experience subscription revenue of $1.08 billion to $1.10 billion, tax rate of approximately 21.5% on a GAAP basis and 18.5% on a non-GAAP basis, GAAP earnings per share of $2.82 to $2.88 and non-GAAP earnings per share of $3.95 to $4. Given the company's performance in the first half of the year and our relentless focus on driving disciplined profitable growth, we're raising our annual fiscal 2023 targets for EPS and net new Digital Media ARR. We are also raising our total Adobe revenue target for fiscal 2023 with Digital Media ahead of our previously issued targets and Digital Experience slightly lower. For fiscal 2023, we're now targeting, total Adobe revenue of $19.25 billion to $19.35 billion, Digital Media net new ARR of approximately $1.75 billion, Digital Media segment revenue of $14.10 billion to $14.15 billion, Digital Experience segment revenue of $4.85 billion to $4.90 billion, Digital Experience subscription revenue of $4.30 billion to $4.35 billion, tax rate of approximately 21.5% on a GAAP basis and 18.5% on a non-GAAP basis, GAAP earnings per share of $11.15 to $11.25 and non-GAAP earnings per share of $15.65 to $15.75. In Q4, we expect to see year-end strength in customer demand for Digital Experience and Digital Media solutions. Our updated targets for fiscal 2023 demonstrates solid operating margin expansion in the second half as compared to the second half of fiscal 2022. In summary, I'm extremely pleased with Adobe's performance in the first half of the year. Few companies are capable of delivering strong top and bottom-line growth in a challenging environment, while at the same time, delivering game-changing innovations that will drive the next decade of growth. These innovations are generating strong customer demand for our products, shaping fiscal 2023 to be another wonderful year for Adobe. Shantanu, back to you. Shantanu Narayen: Thanks, Dan. Our strong Q2 results underscore our momentum and the significant opportunities we have across our business. I'm proud of how our employees around the world continue to raise the bar, create the future and live our purpose. We continue to invest in hiring new college grads and interns to bring the best and brightest talent to Adobe. It's an incredibly exciting time at Adobe. Demand for our category-defining products and services continues to grow. Our innovation engine is delivering Adobe Magic for an expanding set of global customers and our strong execution is enabling us to address a massive market opportunity. 2023 is going to be another phenomenal year for Adobe as we continue to deliver top line growth and margins while investing in fundamental technologies that expand Adobe's success for decades. Thank you. We will now take questions. Operator? Operator: [Operator Instructions] And the first question comes from Michael Turrin with Wells Fargo Securities. Michael Turrin: Nice job on the results. I mean, obviously, I think starting point is with Firefly. We've been fielding a number of questions just on how this alters the size of the market. You had some useful commentary both on monetization and your views on the market. But can you just add some context around early demand signals and how you're expecting this to show up both on the user side of the market and just the overall velocity of content generation? Thank you. David Wadhwani: Sure. Happy to talk about that. We're really excited, if you can't tell on the call, about the Firefly and what this represents. The early customer and community response has been absolutely exhilarating for all of us. You heard us talk about over 0.5 billion assets that have already been generated. Generations from Photoshop were 80x higher than we had originally projected going into the beta. And obviously, we feel really good about both the quality of the content being created and also the ability to scale the product to support that. And we have seen incredible social buzz. The Photoshop community is doing what it always does and is using the product, both Firefly and Photoshop, in ways that we didn't even think of when we were initially building the feature set. So it's great to see all this organic development and buzz coming up. And as we talked about, we're also excited about what this means from a business opportunity perspective. On the retention side, we think the value that we add in the flagship applications are going to be great for existing users. In terms of top of funnel, we think that this helps us reach billions of new users because it makes the act of creating more accessible with regard to conversion. We are very excited about what this can mean for new user onboarding, both Photoshop and Illustrator and also in Express that makes the onboarding of new customers especially early success far more achievable for them. It introduces new offers with adobe.com/firefly as a destination that we can monetize and everything that we talked about at Summit last week around what this can be as an enterprise-grade offering. And of course, with all of this, we have an opportunity to sell subscription credit packs for upsell opportunities. So if you net all that out, we see an ARPU opportunity. We see a net number of users opportunity, and also because of retention, an LTV opportunity. Now we expect all of this to play out over many years. We're very focused right now on user acquisition. None of this, we expect to impact our Q3 numbers. And we'll start to see some of it in Q4 but we don't expect it to be material. But as I mentioned, we expect to see it ramp over the next few years. And we'll share more specifics of this in the months ahead. Michael Turrin: Clearly lots to be excited about there. Thanks. Operator: And the next question will come from Saket Kalia with Barclays. Saket Kalia: Okay. Great. Hey, guys. Thanks for taking my question here. Congrats on a great quarter. David, maybe for you. I want to zero in on that point around Firefly and generating billions of potential users in the years ahead. Obviously, still very early with Firefly but as well as Adobe Express. But I'm curious, what are you seeing with Adobe Express and the ability for Firefly to generate some of that demand or pull through some of that demand for Express, both on the consumer side and the enterprise side. David Wadhwani: Yes. Very excited on both fronts. As you may have seen, we had a beta release of Express last week and this is a massive update to Express. In fact, it's a brand-new product effectively built from the ground up, and we believe this is the product for everyone to use. The response has been absolutely incredible. Broad-based feedback has been overwhelmingly positive, as you mentioned, because of the integration of Firefly, but also how Firefly is able to integrate directly into the user flows and the user journeys for utilization and generation of video content, also for PDF integrations so people are able to bring in and build end-to-end workflows to generate amazing marketing collateral with PDF. We've seen CC users, existing subscribers for CC very excited about the workflows that we've introduced with both Illustrator and Photoshop. Illustrator users are able to take their illustrator output, bring it into Express, add animation and push it out to social. Photoshop users are taking their corpus of Photoshop templates, and they're making that the foundation for easy editing and sharing for their marketing organizations. And that's really been sort of an incredible vote of confidence from everyone that we've seen using the beta, which has also driven the announcements we had last week, specifically around Express and Firefly package together for enterprises. And the interest that we've seen coming out of the announcement in terms of enterprise interest and pipeline generation associated with that has been terrific. And what we're particularly excited about that is it brings our clouds together. So Creative pros are able to create in Photoshop and Illustrator and our other flagship applications. Marketers are able to take that content and edit it more quickly in Express. Both of these are orchestrated through Workfront and Frame.io and they're pushed into AM. So really a core part of our content supply chain. It really feels like an inflection point for Express as well. Shantanu Narayen: And Saket, maybe if I were to add two things to that. First, I think on the consumer side, with the new Express, if you can imagine it, you can do it. And so I think it's really powerful. And within an enterprise, much like Acrobat, we want every enterprise employee to now have a combination of both Acrobat and Express. Operator: And our next question will come from Kirk Materne with Evercore ISI. Kirk Materne: Thanks very much and congrats on the quarter. I guess one, it's probably for David again. David, I was just kind of curious when you think about the enterprise part of the Visual Media business. How, I guess, prepared are customers from a content perspective and a data perspective to take on some of the generative AI capabilities that you guys are bringing to market? And I'm sure this blends into Anil, too, on the Adobe Experience Manager. But I was just wondering if you guys could talk about the data aspect of this and how that interplay might help, frankly, both sides of the Digital Media and the Digital Experience businesses. Thanks. David Wadhwani: Sure. I'll say a few words and then hand it off to Anil as well. So as we've talked about, Firefly, from the beginning, has a few core principles. The first is the quality of output, right? So text. We have capability of text imaging, text-to-text effect. We have vectors in there now. We're working on video design, 3D generation as well. So we have a series of all this incredible content that we think will be a cornerstone of everything needed for enterprise content velocity. The second thing is that we're building it in a way that we can integrate into existing workflows. We've already started to announce integrations into Photoshop and Illustrator and Express. You'll also start to see us continue those integration points, but you'll also start to see us integrate it more directly into the Digital Experience workflows as well. Third is that and perhaps most importantly, we've also been able to because of the way we share and are transparent about where we get our content, we can tell customers that their content generated with Firefly is commercially safe for use. Copyrights are not being violated. Diversity and inclusion is front and center. Harmful imagery is not being generated. So we're able to give them that confidence. And also, as part of our enterprise plans, give them indemnification for the content that's being created. So those things, I think, fundamentally help them engage that. Anil Chakravarthy: Just picking up on what you said. I think if you look at Express and Firefly and also the Sensei gen AI services that we announced for Digital Experience, comes at a time when marketing is going through a big shift from sort of mass marketing to personalized marketing at scale. And for the personalization at scale, everything has to be personalized, whether it's content or audiences, customer journeys. And that's the unique advantage we have. We have the data within the Adobe experience platform with the real-time customer profiles. We then have the models that we're working with like Firefly. And then we have the interfaces through the apps like Adobe Campaign, Adobe Experience Manager and so on. So we can put all of that together in a manner that's really consistent with the data governance that customers expect that their data is used only in their context and use that to do personalized marketing at scale. So it really fits very well together. Shantanu Narayen: Maybe just given how much excitement we have around this, Kirk, three quick things. The first is it really allows for us to, within a company, have every marketer participate in the production and delivery of content. And so agility for an enterprise is great. Second thing maybe I'll add to what both Anil and David said. We can now create custom models. So think of it if you're a company like Coke or a company like Disney and you want to create these campaigns where you want to try out different things. The Firefly model can be customized for them. And that in conjunction with what we have with Express and AEM, really allows it to be tailored for that particular company. I also wanted to just clarify that, that entire go-to-market is completely aligned already within the company. And so we have one enterprise sales force calling on them across Express, Creative Cloud as well as Experience Cloud solutions. Operator: And our next question will come from Alex Zukin with Wolfe Research. Unidentified Analyst: This is [indiscernible] on for Alex Zukin. Alex is flying right now, but he says it's good to see who the [indiscernible] winners are. So now to my question, the DM business continues to outperform in an impressive way. Can you talk to some of the underlying levers and stack rank what is driving the strength? Whether it's demand for content, uptake of newer products or cross-selling success? Can you help unpack the layers of success you're seeing? And then just on gen AI, you have announced new offerings with Generative Fill and more recently, Generative Recolor. As you are seeing kind of the traction you are getting online within the creative community, how is it helping inform you about where the greatest monetization opportunity is? Thank you. David Wadhwani: Sure. Yes, first of all, thanks for the question. Yes, we feel like we're off to a great start for the first half of the year. And as we look at it, the strength was very broad-based. Traffic to adobe.com and top of funnel was strong, frankly, all quarter long. And it's clear that our messaging is resonating well with a broader and broader set of audiences that we can reach. Second, we saw a strong conversion. Our product-led growth investments that we've been making for some time now are starting to pay dividends. Adobe.com is an area we've focused for a long time. We continue to see improvements in terms of customer journey work and conversion. And we've more recently been investing much more significantly in product-led growth motions in our core flagship applications like Photoshop and Acrobat as well. And we've been leveraging a lot of Anil's Digital Experience products that allow us to do personalization at scale in terms of in-product experiences there. And then lastly, it feels like we've really started to see some good inflection in our mobile applications, in particular, Acrobat on mobile and Lightroom mobile performed very well this quarter as well. In addition to that, as Dan mentioned in his opening comments, the emerging products like Substance and Frame continue to grow very nicely and really sort of slipstream into the content supply chain conversation that we're having with enterprise customers. And frankly, enterprise demand for content creation continues to grow. Anil said last week at EMEA Summit that our customers are expecting it to grow 5x in terms of content creation over the next few years. We continue to see more pull for creative apps. And also, we're starting to see enterprises invest much more in Acrobat penetration into their accounts. So they really want more people to have Acrobat from Adobe. So that's just to name a few things. Things are shaping up great for the year, and we're very excited about the direction of the business. Operator: And our next question will come from Mark Moerdler with Bernstein Research. Mark Moerdler: Thank you very much and congratulations on the strong quarter and the updated guidance. Dan, can you give us some color on how gen AI is going to impact margins? Especially 0.5 billion assets created just in the beta, the potential for substantial gen AI, once this is all launched, is going to be enormous. How should we think about that? Dan Durn: Yes. Thanks for the question, Mark. As I reflect on the company's journey, we've got a long history of driving strong profitable growth. We deliver the innovation and the top line progression, but we do it in a very disciplined way, which drives margin and cash flow for investors. I see this playing out in a similar fashion. These are real investments. They are material investments we're making to unlock the magic of the Adobe technology platform and seamlessly integrating it across the product portfolio. When we think about the cost drivers, we think about training, we think about inference, we think about storage costs. The company is ruthlessly prioritizing how we're spending and what projects we're investing in to create a spend envelope to bring this technology to life in a very rapid fashion. You can see the discipline at play. We've been at this for several quarters. You see the strong print from a profitability standpoint in Q1. We followed through with a strong print again in Q2. And we look into the back part of the year, again, you're seeing second half year-over-year, second half over second half, showing an uptick from a profitability standpoint. So we're going to continue to stay focused on being very disciplined, how we prioritize what we do and don't do, and make sure we create the right kind of spend envelope for this technology as we bring it to life. I think it's an statement for us at the company and what we've done for a very long time here. Drive innovation, drive strong top line growth and do it in a very profitable way that's cash flow generative and value creative for investors. David Wadhwani: Yes. And just I'll add a little bit on to that because we've been working very closely between our engineering organization and the finance organization on a number of levers to make sure that we're managing and keeping discipline and cost front of mind. The first is the model training itself. There are a number of things the team has been doing to optimize our ability to train larger models more efficiently. The second is post training inference optimization. There's a lot of, I think, cutting-edge work coming out here, both in terms of research and the work we're doing around things like pruning and distillation and quantization that make the inference execution much more efficient. Third is, as we've talked about in the past, we're working with folks like NVIDIA to make sure that the hardware and software advances go hand in glove, and we're leveraging more and more compute pathways that are on the chip itself. Four is user experience, making sure that as we expose these things to users, we do it in a way that drives more efficiency in the back end. And of course, the big unlock longer term is about hybrid generative approaches. So how do we move more of this computing to the desktop as well, that will be a major cost benefit down the road. But it's a significant effort and a lot of work to do, and we take it very seriously. Shantanu Narayen: And Mark, I just wanted to add, in addition to all of that great work that we're doing on saving costs, I'm more excited about the top line growth that this is going to cause for us. Operator: And our next question will come from Tyler Radke with Citibank. Tyler Radke: Thanks for taking the question. I wanted to ask about the Document Cloud strength you saw in the quarter. I saw that the business saw a nice improvement relative to last quarter. If you could just unpack that a bit. And then secondly, as I look at the full year outlook, clearly, a really strong quarter, one of the biggest speeds we've seen in years. As I think about Q4, just kind of the initial implied guide, is there anything to call out any one-time factors around pricing we should keep in mind as we compare the year-over-year decline or is that just conservatism? David Wadhwani: Yes. Maybe I'll talk about the Acrobat business and we can get to Q4 after that. So first of all, yes, another great quarter. It was great to see ARR growing 23%. And a lot of this is the basics of PDF demand, right? We've seen this incredible tailwind with demand for PDF continuing to grow. PDF has become the de facto standard for unstructured data. And PDF-related searches continue to grow. And this as Shantanu mentioned, and I mentioned in the prepared remarks, 30 years after PDF had launched. So it's amazing to see how things are going. We've been investing very heavily in expanding our top of funnel. We have Acrobat Web that's been driving a lot of new users. We've seen good growth directly to Acrobat Web. Acrobat Mobile has also been a source of new opportunity for us. We talked about our extensions in Chrome and Edge. And also we've mentioned in the past, our partnership with Microsoft to really make Acrobat the foundation or PDF and Reader, the foundation of all documents viewed in Edge as well. So that creates an enormous top of funnel for us, and we continue to sort of broaden that. In addition to that, we've been adding more value directly into the products with a proliferation of signatures and collaboration capabilities. And all of that, combined with our product-led growth motion, is driving strong conversion. So we feel really good about the foundation of that business. Dan Durn: And coming to the guide, Tyler, the way I'd think about it is if we think about the journey to date this fiscal year, we had a strong print in Q1. We had a strong print in Q2. We've got a lot of momentum around this business. As we look into the back half of the year, we see that momentum continuing. We're 2 weeks into Q3. We see that momentum continuing. And as you would expect, we see a strong finish to the year in Q4. And we've got a long track record inside of the company of setting expectations and then executing against those expectations in a way that drives value for investors. And so I think the setup for the back half of the year is no different than that. Operator: And our next question will come from Matt Swanson with RBC. Matt Swanson: Yes. Thanks for taking my question. And I'll add my congratulations on the quarter. We've kind of talked from the beginning that a major differentiation point for Firefly is that this is an enterprise-safe generative model. Could you just give us some insights into your customer conversations and really how focused enterprises are around the potential, maybe a copyright or trademark issues that generative could create using other solutions. Shantanu Narayen: Matt, maybe I'll take that. It's actually been off the chart the interest. We just had our Summit in London, following the successful launch that we had here where customers even in the U.S. were asking us questions. And I would say there are around three areas. All of them had perhaps experimented with other solutions. The moment Adobe came in and said this is both safe and designed for commercially safe as well as we can create the custom models, I think the interest associated with that has been off the charts. We've already created some custom models where we tweak our core model with assets that people can provide us. And that's also a secret sauce that we're unlocking and the integration of that within each of our products. So frankly, the product is not yet available, but the number of customers who want to sign on in terms of wanting to use it has been one of the most successful launches that we've had. And when I say the product is not ready, all I'm saying is it's not generally available. It's certainly available for them to put through their paces within the company. Matt Swanson: Yes. No, that sounds fantastic. We get the users and the CEOs to agree on the same product. That's a good combination. Shantanu Narayen: Thank you. Operator: Our next question comes from Jay Vleeschhouwer with Griffin Securities. Jay Vleeschhouwer: Thank you. Good evening. Shantanu, at Summit, with the content supply chain news, the company pretty much effectuated something that you've been talking about for the last number of years. That is content supply chain. And the question is about the potential business impact. Could you talk about what is fundamentally new or newly required in terms of pipeline development for that broader concept of implementing Adobe product? What you think the impact might be, for example, in your average book of business that you disclosed with your top 2,500 and top 1,000 customers each year at the analyst meeting? And you do seem to be investing still heavily in consulting capacity. So is that part of the development that you're foreseeing necessary for content supply chain? Shantanu Narayen: A couple of points, Jay, and then certainly, Anil can add to it. First, I think, we are good user case for what's happening. The reality is that with what David talked about as it relates to product-led growth, what the content supply chain really allows us to do is start with a marketing brief that we're putting within workflow, start to create the campaigns, have AEM and our asset management solution be the place where all of these assets are and then deliver them through campaign as well as deliver them through the Adobe Experience Manager on the website. So I think the interest associated with this is all about trying to say all of the content that we are creating, how do we both make that more efficient as well as understand how we can both globalize, which has been a big driver of why people want this content supply chain. The traditional agencies, I think Anil referred to this. They all have not only, I think, procured our solution for their internal usage but they're also collectively taking this solution to joint customers. So I think it actually just really beautifully aligns within Anil's enterprise sales motion, how we can go with everything from workflow, which actually had a great quarter, so we continue to see good growth in workflow. So I think it aligns all of our offerings. And there isn't one customer that doesn't want. That's partly because of all the additional cost and scrutiny on what the expenses are right now. Anil Chakravarthy: Yes. We are just so uniquely differentiated across the Creative Cloud and Experience Cloud. And in terms of getting this implemented for customers, as you mentioned, we have now partnerships with Accenture, with IBM, with Omnicom, with Publicis. And all of them are working very closely with us, with our field teams to make sure that the content supply chain gets implemented for every customer across different verticals and geographies, specifically for their needs. Operator: And our next question will come from Keith Weiss with Morgan Stanley. Elizabeth Porter: Great. Thank you very much. This is Elizabeth Porter on for Keith Weiss. Congrats on the strong quarter. And my question is again around generative AI. There's clearly a lot of investment and news across the industry. So are there generative AI capabilities that could become table stakes? And what are the areas that drive real differentiation that is monetizable for Adobe? How do you see this market evolving between those two pieces over time where Adobe really solidifies its leadership? Shantanu Narayen: Yes. I think, for us, the entire generative AI really is all three layers that we talked about. And if you think about our generative AI strategy, it really first starts with do we have unique data that we can use on behalf of our customers for customers. And clearly, both in the creative in the document space with PDF as well as in the marketing space, the amount of data that we have is a key differentiator because that is going to dictate the models when you want to design this to be commercially safe. I think the second thing that we're really focused on is in the domains where we have incredible expertise, whether you consider it imaging or vector or documents or marketing, we are creating our own foundational models. And so when you create the foundation models, you really understand how that works, you understand how you can take it to an enterprise and create a custom model for that. But I think the real differentiator for Adobe continues to be, how does a user get value? And I think it's in the ubiquitous interfaces that we have, whether that's on the marketing side, everything where people are trying to create these campaigns or automate production or create a website or create a mobile app, similarly in documents, which we haven't touched on as much today, how they get the synthesis of the PDF, how they understand the structure of the PDF. And clearly, in creative that we've seen, both with Generative Recolor and Adobe Illustrator as well as Generative Fill in Photoshop. As long as we have the interfaces that delight customers and where all this magic comes to life, that's really, I would say, Adobe is differentiated. And you've seen that. It's not like there weren't other imaging models out there. The fact that we've captured the imagination of the community is a result of how all three of these layers really work well for Adobe better than anybody else. Jonathan Vaas: Operator, we're right at the top of the hour. Let's take one more question and then we'll conclude. Operator: Thank you. And that question will come from Brent Thill with Jefferies. Brent Thill: Thanks. Shantanu, a lot of questions around why won't the DX Cloud give the Creative Cloud the [indiscernible] as well. Why are you confident this won't spill over? And given on the last question, I'll break the operator's policy and asking one for David on, when you think about just the number one question we're all getting, will AI reduce the number of seats available to you. Can you just address that? That's the number one question we continue to get. Thank you. David Wadhwani: Great. I'll start with the second, and we can go to the first after that. So Brent, if you take a look at Adobe's history, this is what we do, right? If you look at desktop publishing, if you look at creative imaging, if you look at video editing, the result of Adobe's focus here is always about increasing productivity, increasing the importance of these new workflows, and that has always led to an increase in jobs. Let's take video editing as an example, right? We lowered the cost of production in video significantly with our work with Premier and After Effects in Audition. And what that did was it increased the ability for people to create more content. So they didn't create the same amount of content with fewer people. What they did was they found new business opportunities. They created more niche content that led to video streaming and personalization, and that created an explosion in the industry around video production. That's what we do. And we're sitting at a moment where companies are telling us that there's a 5x increase in content production coming out in the next couple of years. And you see a host of new media types coming out. And we see the opportunity here for both seat expansion as a result of this. And also because of the value we're adding into our products themselves, increase in ARPU as well. Now beyond all of this, in terms of professional video and professional content creation, I should say, there's also a massive opportunity because this catalyzes our ability much more effectively to go after the billions of creators around the world who need things like this to be creative. So we're going to help them also create standout content. So again, I take a step back and I say, we have an opportunity to get more people into the franchise. We have the ability to drive more ARPU through our products. And we have the ability to make people more successful and drive more LTV. So the foundation, I think, is very strong. Shantanu Narayen: And Brent, if I understood the question right, I mean, the interest within the DX customer base for what we are doing on Creative Cloud, if you look at both Summits, the interest associated with how these clouds and offerings are working together is actually one of the catalysts that I think will help both the Digital Media as well as the Digital Experience business. So you're right. I mean, we are finding that every customer is saying, this is the way for us to really go all the way from when we start to create a campaign all the way to the delivery and understanding the analytics associated with that. And I think the enterprise team has really aligned around this joint selling, and we've created a bill of materials where you can actually have both the Digital Experience as well as the Creative Cloud offerings in it. And I think that's what you're going to see. In the second half, we're going to have a lot more of these combined sales that happen with every enterprise because it helps, as we've been saying, with both the top line and the bottom line. And since it was the last question, I mean, let me end by saying it was a great first half. We appreciate all the comments that you have made about the quarter. And I wanted to thank the Adobe team for real great execution as well as, again, congratulate in particular, the Acrobat team for 30 years of amazing innovation. What I'm most proud of is, if you look at just the last few months in terms of what the company has delivered across Firefly and Generative Fill and Generative Recoloring, what's happening with Acrobat across the web, in Digital Experience, the Adobe mix model, product analytics, what we are doing around content supply chain, the new offerings that are coming for an increasing set of customers that will serve real customer problems I think really all goes well for how we will continue to drive innovation and serve customers as well. So I'm really excited about the second half as well as what we're going to continue to do in terms of delivering top line and bottom line growth. And with that, I'll hand it over to Jonathan. Jonathan Vaas: Thanks, Shantanu, and thanks, everyone, for joining the call. I look forward to speaking with many of you soon, and this concludes the event. Operator: Thank you. That does conclude today's conference. We do thank you for your participation and have an excellent day.
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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.

Adobe Inc. (NASDAQ:ADBE) Q4 Earnings Preview: What to Expect

  • Adobe's anticipated EPS is $4.66, with projected revenue of approximately $5.54 billion, indicating a 9.71% year-over-year growth.
  • The company has a history of earnings surprises, with an average of 2.59% over the last four quarters.
  • Analysts remain optimistic, with a majority recommending a "buy" rating and an average price target suggesting a 12% upside.

Adobe Inc. (NASDAQ:ADBE) is a leading software company known for its creative and digital marketing solutions. As it prepares to release its fourth-quarter earnings for fiscal 2024 on December 11, analysts are closely watching the company's performance. Adobe's anticipated earnings per share (EPS) is $4.66, with projected revenue of approximately $5.54 billion, reflecting a 9.71% increase from the same quarter last year.

The Zacks Consensus Estimate aligns with Adobe's revenue projection, indicating a stable outlook with a 9.13% growth in earnings from the previous year. Adobe has a track record of surpassing expectations, with an average earnings surprise of 2.59% over the last four quarters. This consistent performance is attributed to strong demand for its Generative AI solutions, despite facing competition and valuation challenges.

Analysts are optimistic about Adobe's growth, with 11 out of 15 tracked by Visible Alpha recommending a "buy" rating. The average price target for Adobe's stock is $619, about 12% higher than its recent closing price. This positive sentiment is supported by Adobe's ability to revise its EPS estimate upward by 0.1% over the past month, signaling confidence in its financial performance.

Adobe's financial metrics, such as a price-to-earnings (P/E) ratio of 45.49 and a price-to-sales ratio of 11.51, reflect high market expectations for future growth. The company's enterprise value to sales ratio of 11.46 and enterprise value to operating cash flow ratio of 35.66 highlight its valuation in relation to revenue and cash flow generation. With a debt-to-equity ratio of 0.39 and a current ratio of 1.11, Adobe demonstrates strong financial health, maintaining a low level of debt and a good balance of current assets to liabilities.

Adobe (NASDAQ: ADBE) Maintains "Outperform" Rating by RBC Capital

  • RBC Capital reiterated its "Outperform" rating for Adobe (NASDAQ: ADBE), highlighting the company's leadership in creative and digital marketing solutions.
  • Adobe's integration of AI technologies, particularly the Firefly AI platform, is central to its growth strategy and positions it strongly in the expanding AI market.
  • Despite providing soft guidance, Adobe's Price/Earnings to Growth (PEG) ratio suggests the stock may be undervalued, indicating potential for investors.

On December 5, 2024, RBC Capital reiterated its "Outperform" rating for Adobe (NASDAQ: ADBE), with the stock priced at $534.61. Adobe is a leading software company known for its creative and digital marketing solutions. It competes with other tech giants like Microsoft and Salesforce in the software industry. Adobe's innovative AI technologies, such as the Firefly AI platform, are key to its growth strategy.

Generative AI is creating significant opportunities for companies like Adobe, as highlighted at Bloomberg Intelligence's conference. Adobe is at the forefront of this productivity revolution, alongside key players like Nvidia and PayPal. The integration of AI technologies has contributed to the resurgence of software stocks, including Adobe, which have outperformed semiconductor stocks in the second half of 2024.

Adobe's third-quarter results exceeded expectations, but the company provided soft guidance, leading to a decline in its stock price. Despite this, Adobe's Price/Earnings to Growth (PEG) ratio suggests that the stock may be undervalued. The company's Firefly AI platform shows significant potential, positioning Adobe well in the expanding AI market.

Adobe is set to release its fourth quarter and fiscal year 2024 earnings results on December 11, 2024. This announcement will be followed by a conference call with investors, streamed live on the Adobe Investor Relations Site. The company continues to use its website as a primary channel for distributing important information to investors.

Currently, Adobe's stock is trading at $535.76, with a slight decrease of 0.1361% from the previous day. The stock has seen a low of $529.79 and a high of $536.125 today. Over the past year, Adobe's stock has reached a high of $638.25 and a low of $433.97. The company's market capitalization is approximately $235.84 billion, with a trading volume of 367,608 shares.

Adobe Positioned for Growth Amid AI Opportunities, DA Davidson

DA Davidson analysts reiterated their Buy rating on Adobe (NASDAQ:ADBE), highlighting the company’s strong prospects for sustained growth and margin expansion.

The analysts emphasized Adobe’s ability to enhance its already market-leading margins, driven by increased operational scale and contributions from artificial intelligence. Adobe's durable growth engine, supported by its market leadership and consistent innovation, was viewed as a key factor in maintaining its competitive edge.

Adobe’s valuation was noted as particularly attractive, trading at 26 times next twelve months (NTM) earnings per share—currently the lowest among its large-cap peers. The analysts attributed this discount to concerns about AI’s potential impact on Adobe's business, which they argued were unfounded. Instead, the exponential growth of AI-generated content was seen as a significant monetization opportunity, positioning Adobe for both near- and long-term success.

Marjorie Taylor Greene Invests in Adobe Inc. Amidst Market Fluctuations

  • Adobe Inc. (NASDAQ:ADBE) sees a 19.4% decline in share price over the past year, contrasting with the tech sector's growth.
  • Despite challenges, Adobe's strong demand for Creative Cloud, Document Cloud, and Adobe Experience Cloud drives top-line growth.
  • Adobe is considered a laggard with significant upside potential, trading at $511.69 with a market cap of approximately $225.25 billion.

On November 20, 2024, Marjorie Taylor Greene made a purchase transaction involving shares of Adobe Inc. (NASDAQ:ADBE). Adobe is a leading software company known for its creative and digital marketing solutions. It competes with other tech giants in the digital content and marketing industry.

Despite a 19.4% decline in Adobe's share price over the past year, Wall Street analysts view Adobe as a promising investment, as highlighted by Zacks. This decline contrasts with the broader Zacks Computer & Technology sector's 32.9% return and the Zacks Computer Software industry's 16.9% appreciation. The challenging macroeconomic environment and increased competition in the generative AI space have impacted Adobe's performance.

Adobe's strong demand for its creative products, such as Creative Cloud, Document Cloud, and Adobe Experience Cloud, is driving top-line growth. The company's robust cloud-enabled products and expanding generative AI capabilities enhance its business prospects. Rising subscription revenues and solid momentum in mobile apps are significant positives for Adobe.

Adobe is identified as a laggard with significant upside potential for the remainder of 2024. Despite the impressive rally in U.S. stock markets, Adobe has underperformed. However, it is among a select group of stocks expected to achieve double-digit gains in the near term, supported by a favorable Zacks Rank.

Currently, Adobe is trading at $511.69 on the NASDAQ, with a market capitalization of approximately $225.25 billion. The stock has experienced a 1.44% increase, translating to a rise of $7.25. Over the past year, Adobe's stock has fluctuated between a high of $638.25 and a low of $433.97, indicating potential for future growth.

Adobe Stock Drops 8% After Q3 Results Beat Estimates but Q4 Guidance Falls Short

Adobe (NASDAQ:ADBE) reported its fiscal third-quarter results on Thursday, surpassing analysts' expectations, but its guidance for the upcoming quarter fell short of forecasts, leading to a drop in its stock price of more than 8% pre-market today.

The company posted earnings of $4.65 per share on revenue of $5.41 billion, beating analysts’ predictions of $4.53 EPS on $5.37 billion in revenue.

The company reported $504 million in new digital media annualized recurring revenue (ARR), but concerns arose over its guidance for the fourth quarter. Adobe projected Q4 earnings between $4.63 and $4.68 per share, with a midpoint of $4.66, on revenue ranging from $5.50 billion to $5.55 billion. This missed market expectations, which forecasted $4.67 in EPS and $5.60 billion in revenue.

While Adobe’s Document Cloud business maintained strong momentum, growing over 25%, concerns emerged around the projected growth rate for its Creative Cloud segment. Analysts noted that the expected ARR growth of around 11.5% for Creative Cloud in Q4 was slightly below the growth rates seen in previous quarters.

The company anticipates new digital media ARR for the fourth quarter to be around $550 million, which aligns with the guidance but failed to ease investor concerns over the overall outlook.

Adobe Inc. (NASDAQ:ADBE) Surpasses Q3 Earnings and Revenue Estimates

  • Adobe Inc. (NASDAQ:ADBE) reported a Q3 EPS of $4.65, beating the estimated EPS of $4.53, and revenue of $5.41 billion, exceeding estimates.
  • The company demonstrated significant year-over-year growth with a 10.6% increase in revenue and an EPS growth from $4.09 to $4.65.
  • Adobe's financial health is highlighted by a P/E ratio of 48.70, a P/S ratio of 12.42, and a strong track record of exceeding analyst projections for four consecutive quarters.

Adobe Inc. (NASDAQ:ADBE), a leading software company known for its creative and digital marketing solutions, recently reported its earnings for the third quarter of 2024. The company announced an earnings per share (EPS) of $4.65, surpassing the estimated EPS of $4.53. Additionally, Adobe reported revenue of $5.41 billion, exceeding the estimated revenue of approximately $5.37 billion. This performance underscores Adobe's ability to outperform market expectations and demonstrates its continued growth and financial health.

During the Q3 2024 Earnings Conference Call, key executives, including Chair and Chief Executive Officer Shantanu Narayen and Executive Vice President and Chief Financial Officer Dan Durn, discussed Adobe's financial performance and strategic direction. The presence of analysts from prestigious firms such as Wolfe Research and JPMorgan highlighted the investment community's significant interest in Adobe's financial health and future prospects. This level of engagement from the analyst community reflects confidence in Adobe's market position and its ability to sustain growth.

Adobe's revenue of $5.41 billion for the quarter ending in August 2024 marked a significant year-over-year growth of 10.6%, outperforming the Zacks Consensus Estimate by 0.79%. The company's EPS for the same period was $4.65, compared to $4.09 a year earlier, surpassing the consensus EPS estimate of $4.53 by 2.65%. These figures not only demonstrate Adobe's ability to grow its revenue and earnings year-over-year but also its capacity to exceed Wall Street expectations, making it an attractive option for investors.

The company's financial metrics, such as the price-to-earnings (P/E) ratio of approximately 48.70 and the price-to-sales (P/S) ratio of about 12.42, provide insights into the market's valuation of Adobe. With an enterprise value to sales (EV/Sales) ratio of roughly 12.09 and an enterprise value to operating cash flow (EV/OCF) ratio of approximately 37.63, Adobe showcases its valuation in relation to its sales and cash flow generation. The low debt-to-equity (D/E) ratio of 0.03 indicates minimal reliance on debt for financing, while the current ratio of about 1.11 suggests a balanced ability to meet short-term liabilities with its short-term assets.

Adobe's consistent performance, as evidenced by its ability to surpass consensus EPS and revenue estimates for four consecutive quarters, positions it as a key player in the Zacks Computer - Software industry. This track record of exceeding analyst projections underscores Adobe's strong financial health and potential for sustained growth and profitability.