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Adobe (ADBE) Beats Earnings and Revenue Estimates in Q4

Zacks Equity Research

Adobe Inc. ADBE reported fourth-quarter fiscal 2019 non-GAAP earnings of $2.29 per share, surpassing the Zacks Consensus Estimate of $2.26. Also, the figure increased 11.7% sequentially and 25.1% on a year-over-year basis.

Adjusted revenues also jumped 21.5% year over year to $2.99 billion, beating the Zacks Consensus Estimate by 0.8%.

This upside was driven by strong demand for the company’s Adobe Document Cloud and Adobe Experience Cloud products, along with growing subscription for cloud application.

Following strong fiscal fourth-quarter results, its shares were up 2.9%. However, shares of Adobe have returned 38.6% in the past year, underperforming the industry's 39.6% rally.

 

 

Top Line in Detail

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

Subscription revenues came in at $2.69 billion (accounting for 89.8% of its total revenues), up 23% on a year-over-year basis.

Product revenues totaled $167.1 million (5.6% of revenues), up 11.1% year over year.

Services & support revenues came in at $138 million (4.6% of revenues), increasing 6.1% year over year.

Adobe Systems Incorporated Price, Consensus and EPS Surprise

 

Adobe Systems Incorporated Price, Consensus and EPS Surprise

Adobe Systems Incorporated price-consensus-eps-surprise-chart | Adobe Systems Incorporated Quote

Segment Details

The company operates in two reportable segments — Digital Media and Digital Experience.

Digital Media - This segment generated revenues of $2.08 billion, which increased 22% on a year-over-year basis. The segment comprises Creative Cloud and Document Cloud. Digital Media ARR came in at $8.40 billion. Strength in mobile and overall web traffic drove the Digital Media business.

Creative Cloud (CC) generated $1.74 billion in revenues, reflecting 20% year-over-year growth. In addition, Creative ARR was up $445 million from the prior-year quarter to $7.31 billion. Growth drivers in the quarter were strong net new subscriptions across user segments and geographies. Moreover, product introductions, growth in emerging markets, solid demand for online video creation and improving average revenue per user across key offerings were other positives.

Document Cloud (DC) generated $339 million revenues, up 31% from the year-ago quarter. Moreover, Document ARR came in at $1.09 billion. This was driven by continued strength in Acrobat subscription adoption.

Digital Experience - This segment generated revenues of $859 million, up 24% on a year-over-year basis. The segment includes Adobe Experience Cloud. Experience Cloud subscription revenues were $726 million in the fiscal fourth quarter, up 31% year over year.

Operating Details

Gross margin was 84.9%, which contracted 50 basis points (bps) on a year-over-year basis.

Adobe incurred operating expenses of $1.53 billion, reflecting a 13% year-over-year increase. As a percentage of total revenues, sales & marketing, research & development, as well as general & administrative expenses decreased from the prior-year quarter.

As a result, adjusted operating margin was 42.6%, reflecting an increaseof 400 bps year over year.

Balance Sheet & Cash Flow

At the end of the fiscal fourth quarter, cash and short-term investment balance was $4.18 billion, up from $3.65 billion in the prior quarter. Trade receivables were $1.53 billion, up from $1.37 billion recorded in the fiscal third quarter.

Cash generated from operations was $1.38 billion versus $922 million in the fiscal third quarter. During the reported quarter, the company repurchased approximately 2.8 million shares.

Guidance

For first-quarter fiscal 2020, Adobe projects total revenues to be $3.04 billion. The Zacks Consensus Estimate for revenues is pegged at $2.97 billion. Adobe expects year-over-year revenue growth of 19% and 15% from Digital Media and Digital Experience segments, respectively.

Based on a share count of 489 million, management expects GAAP and non-GAAP earnings of $1.76 and $2.23 per share, respectively. The Zacks Consensus Estimate for the quarter is pegged at $2.26 per share.

For fiscal 2020, Adobe projects total revenues to be $13.15 billion. The Zacks Consensus Estimate for revenues is pegged at $13.10 billion. The company expects year-over-year revenue growth of 19% and 16% from Digital Media and Digital Experience segments, respectively.

Based on a share count of 486 million, management expects GAAP and non-GAAP earnings of $7.40 and $9.75 per share, respectively. The Zacks Consensus Estimate for the fiscal year is pegged at $9.79 per share.

Zacks Rank & Stocks to Consider

Currently, Adobe carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include MACOM Technology Solutions Holdings, Inc. MTSI, Itron, Inc. ITRI and AMETEK, Inc. AME, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for MACOM Technology, Itron and AMETEK is currently projected at 15%, 25% and 10.9%, respectively.

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