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Adobe (ADBE) Q1 Earnings & Revenues Beat Estimates, Rise Y/Y

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Adobe Inc. ADBE reported first-quarter fiscal 2022 non-GAAP earnings of $3.37 per share, beating the Zacks Consensus Estimate by 0.9%. Further, the figure improved 7.3% on a year-over-year basis and 5.3% sequentially.

Total revenues were $4.26 billion, which surpassed the Zacks Consensus Estimate of $4.23 billion. Further, the figure was up 9% from the year-ago quarter and 3.7% from the previous quarter.

Top-line growth was driven by the strong performance of Adobe Creative Cloud, Document Cloud and Experience Cloud. Accelerating subscription revenues further benefited the results.

Adobe Inc. Price, Consensus and EPS Surprise

Adobe Inc. Price, Consensus and EPS Surprise
Adobe Inc. Price, Consensus and EPS Surprise

Adobe Inc. price-consensus-eps-surprise-chart | Adobe Inc. Quote

Top Line in Detail

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

Subscription revenues were $3.96 billion (accounting for 93% of its total revenues), up 10.4% on a year-over-year basis.

Product revenues totaled $145 million (3% of revenues), down 6.4% year over year.

Services & support revenues were $159 million (4% of revenues), declining 4.2% from the prior-year quarter.

Segmental Details

Digital Media: The segment generated revenues of $3.11 billion, which improved 9% on a year-over-year basis. The segment comprises Creative Cloud and Document Cloud. Notably, Digital Media’s annualized recurring revenues (ARR) increased to $12.57 billion, in which enterprise ARR from the Frame.io buyout contributed well.

Creative Cloud generated $2.55 billion of revenues, up 7% year over year. Creative ARR was $10.54 billion. The growing demand for Creative Cloud products globally contributed well. Further, increasing monthly active users on the newly launched platform, Creative Cloud Express, and the Frame.io acquisition’s benefits remained positives. Strength across Substance 3D and new 3D Modeler beta, owing to the rising proliferation of Metaverse, remained a tailwind.

Document Cloud’s revenues were $562 million, up 17% from the prior-year quarter. Document ARR was $2.03 billion. The spike in the searches for document actions, which benefited Acrobat Web, contributed well. The strong adoption of Adobe Sign, owing to the new sign integration with Adobe Commerce and Workfront and the signature feature in Acrobat, was a positive. Strong momentum in Acrobat PDFs on mobile was beneficial. The well-performing Document Cloud enterprise business contributed well.

Digital Experience: The segment generated revenues of $1.06 billion, up 13% on a year-over-year basis. The segment comprises Adobe Experience Cloud. Experience Cloud subscription revenues were $932 million, which rose 15% from the year-ago quarter. Cross cloud integrations, product innovations and the growing adoption of Adobe Experience Manager drove top-line growth for the segment.

Operating Details

The gross margin was 87.9%, which contracted 70 basis points (bps) on a year-over-year basis.

Adobe incurred operating expenses of $2.2 billion, reflecting an 8.3% year-over-year increase. As a percentage of total revenues, the figure contracted 40 bps to 50.9%.

Notably, the adjusted operating margin was 46.8%, flat year over year.

Balance Sheet & Cash Flow

As of Mar 4, 2022, cash and short-term investment balance was $4.7 billion, down from $5.8 billion as of Dec 3, 2021. Trade receivables were $1.7 billion, down from $1.9 billion recorded in the fiscal fourth quarter.

Long-term debt was $3.6 billion at the end of the fiscal first quarter compared with $4.1 billion at the end of the previous quarter.

Cash generated from operations was $1.8 billion in the fiscal first quarter versus $2.05 billion in the fiscal fourth quarter. In the reported quarter, the company repurchased 3.8 million shares.

Guidance

For second-quarter fiscal 2022, Adobe projects total revenues of $4.34 billion. The Zacks Consensus Estimate for revenues is pegged at $4.39 billion.

Adobe expects year-over-year revenue growth of 13% from Digital Media. The Digital Experience segment’s revenues are expected to grow 15% on a year-over-year basis. Digital Experience subscription revenues are likely to increase 17% year over year.

Management expects non-GAAP earnings of $3.30 per share. The Zacks Consensus Estimate for the same is pegged at $3.35 per share.

Given the ongoing tensions between Russia and Ukraine, Adobe has reduced its Digital Media ARR balance by $75 million, equivalent to the total ARR in both countries. Further, it announced a reduction of $12 million in the Digital Media ARR, which represents the company’s total ARR in Ukraine. Hence, the figure is going to be down by $87 million.

Adobe has halted its all new sales of products and services in Russia and Belarus.

Nevertheless, the company expects less impact on its Digital Experience business.

Zacks Rank & Stocks to Consider

Currently, Adobe carries a Zacks Rank #3 (Hold).

Investors interested in the broader technology sector can consider better-ranked stocks like Advanced Micro Devices AMD, Arrow Electronics ARW and Analog Devices ADI. While Advanced Micro Devices and Arrow Electronics sport a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Micro Devices has gained 50% in the past year. The long-term earnings growth rate for AMD is currently projected at 29.1%.

Arrow Electronics has gained 22.7% in the past year. The long-term earnings growth rate for ARW is currently projected at 3.1%.

Analog Devices has gained 9.5% in the past year. The long-term earnings growth rate for ADI is currently projected at 12.3%.


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