Adobe Misses Earnings Outlook, But Revenues Continue To Outpace

Adobe (Nasdaq: ADBE) has been transforming its operations to stay in step with the industry’s trends. For the past few years, it has been shifting toward a subscription-based model from the traditional license-based model for its software. More recently, it has been making relevant acquisitions in the cloud. The recent results were stellar, but the earnings outlook failed to impress the market.

Adobe’s Financials
Adobe’s fourth quarter revenues grew 23% over the year to a record $2.46 billion, ahead of the market’s projections of $2.43 billion. This was the fifteenth consecutive quarter that Adobe delivered revenue growth. Adjusted EPS of $1.87 were marginally lower than the Street’s forecast of $1.88. Including the impact of the acquisitions of Magento and Marketo, earnings came in at $1.90 for the quarter.

By segment, revenues from the Digital Media segment grew 23% to $1.71 billion with Creative revenue growing 26% to $1.45 billion and Document Cloud growing 10% to $259 million. The digital experience segment reported a growth of 25% over the year to $690 million driven by a 30% growth in subscriptions-based revenues. The market was looking for revenues of $1.70 billion from the Digital Media segment and $660.2 million from the Digital Experience segment.

The acquisition of Marketo helped add $21 million in revenues for the quarter for Adobe. Magento’s acquisition brought in another $30 million. But while the acquisitions may be delivering higher than expected revenues, but the lower than expected earnings suggest that Adobe’s acquisitions may be impacting its earnings.

Adobe’s transition to the subscription model is helping it grow. During the quarter, Adobe added digital media annualized recurring revenue (ARR) of $430 million in the quarter, exiting the year with $6.83 billion. The growth reflects how Adobe has a growing customer-base for its subscription offerings. Adobe reported 88% of its revenue came from recurring sources, compared with 84% a year ago.

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Disclaimer: More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion ...

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