Adobe (ADBE) Q3 Earnings & Revenues Beat Estimates, Rise Y/Y
Adobe Inc. ADBE released third-quarter fiscal 2023 non-GAAP earnings of $4.09 per share, beating the Zacks Consensus Estimate by 3.02%. The figure improved 20.3% on a year-over-year basis.
Total revenues were $4.89 billion, which beat the Zacks Consensus Estimate of $4.85 billion. The figure was up 10% on a reported basis and 13% on a constant-currency basis from the year-ago quarter.
Top-line growth was driven by the strong performances of Adobe Creative Cloud, Document Cloud and Experience Cloud. Accelerating subscription revenues also contributed well.
Strengthening generative artificial intelligence (AI) efforts contributed well.
ADBE has gained 64% on a year-to-date basis, outperforming the industry’s growth of 41.6%.
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 $4.63 billion (accounting for 94.7% of total revenues), up 12.2% on a year-over-year basis.
Product revenues totaled $96 million (1.9% of total revenues), down 23.8% year over year.
Services & support revenues were $163 million (3.4% of total revenues), decreasing 8.9% from the prior-year quarter.
Segmental Details
Digital Media: The segment generated revenues of $3.59 billion, which improved 11% on a year-over-year basis. The figure surpassed the Zacks Consensus Estimate of $3.56 billion. The segment comprises Creative Cloud and Document Cloud. Digital Media’s annualized recurring revenues (ARR) increased to $14.6 billion, of which the net new ARR was $464 million.
Creative Cloud generated $2.91 billion in revenues, up 11% year over year. The figure came ahead of the Zacks Consensus Estimate of $2.89 billion. Creative ARR was $11.97 billion. Adobe’s growing momentum in generative AI on the back of Firefly remained a major positive. The integration of Firefly into Photoshop and Illustrator contributed well to the company’s strong customer momentum. Photoshop and Illustrator were downloaded by more than three million users. Strengths in Adobe Express and Lightroom were a positive. The introduction of new video assets in Adobe Stock and product-led growth motions benefited the Stock business during the reported quarter. All these factors led to strong customer wins, which include Amazon, Havas, Paramount, SAP, Southern Graphics and TakeTwo Interactive U.S. Department of Energy.
Document Cloud’s revenues were $685 million, up 13% from the prior-year quarter. The figure came ahead of the consensus mark of $671 million. Document ARR was $2.63 billion. Strength across web, mobile and embedded third-party app ecosystems contributed well to the growth in the monthly active user base. Solid momentum across the Acrobat ecosystem was a positive. Its adoption of Acrobat and Acrobat Sign was another positive. Enhanced PDF workflows across Acrobat and Express, drove customer momentum further. All these factors contributed well to the customer base’s expansion. Key customer wins were Citibank, GlaxoSmithKline, Emerson Electric, Morgan Stanley and Volkswagen.
Digital Experience: The segment generated revenues of $1.23 billion, up 10% on a year-over-year basis. The figure came ahead of the consensus mark of $1.22 billion. The segment comprises Adobe Experience Cloud. Experience Cloud subscription revenues were $1.1 billion, which rose 12% from the year-ago quarter. Strong demand for AEP and native apps contributed well. Strength in Adobe Journey Optimizer book of business was a positive. Its continued focus on innovating Adobe Experience Manager was another positive. Growing demand for Workfront drove top-line growth within the segment. All these factors led to strong customer wins, which include Amazon, Blue Cross Blue Shield of Florida, Dollar General, Havas, Intuit, IRS, Jet2.com, Lufthansa, Macy’s, MSC Cruises, Novo Nordisk and SAP.
Operating Details
The gross margin was 88.1%, which expanded 30 basis points (bps) on a year-over-year basis.
Adobe incurred operating expenses of $2.6 billion, reflecting an 8.7% year-over-year increase. As a percentage of the total revenues, the figure contracted 80 bps to 53.4%.
The adjusted operating margin was 46.3%, expanding 220 bps year over year.
Balance Sheet & Cash Flow
As of Sep 1, 2023, the cash and short-term investment balance was $7.5 billion, up from $6.6 billion as of Jun 2, 2023. Trade receivables were $1.85 billion, up from $1.7 billion in the fiscal second quarter.
Long-term debt was $3.633 billion at the end of the fiscal third quarter compared with $3.631 billion at the fiscal second-quarter end.
Cash generated from operations was $1.9 billion in the fiscal third quarter versus $2.1 billion in the fiscal second quarter. In the reported quarter, the company repurchased 2.1 million shares.
Guidance
For fourth-quarter fiscal 2023, Adobe projects total revenues between $4.975 billion and $5.025 billion. The Zacks Consensus Estimate for the same is pegged at $4.98 billion.
Adobe expects Digital Media revenues between $3.67 billion and $3.70 billion. The Digital Experience segment’s revenues are expected to be between $1.25 billion and $1.27 billion.
Net new ARR in the Digital Media segment is projected to be $520 million. Subscription revenues of Digital Experience are anticipated to be within $1.11-$1.13 billion.
Management expects non-GAAP earnings between $4.10 and $4.15 per share. The consensus mark for the same is pinned at $4.03.
Zacks Rank & Other Stocks to Consider
Currently, Adobe carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are Asure Software ASUR, Arista Networks ANET and Badger Meter BMI. Asure Software currently sports a Zacks Rank #1 (Strong Buy), and Arista Networks and Badger Meter carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Asure Software shares have gained 23.8% in the year-to-date period. ASUR’s long-term earnings growth rate is projected at 27%.
Arista Networks shares have gained 61.9% in the year-to-date period. The long-term earnings growth rate for ANET is projected at 18.75%.
Badger Meter shares have gained 47.3% in the year-to-date period. BMI’s long-term earnings growth rate is projected at 15.05%.
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