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Adobe (ADBE) Q4 Earnings and Revenues Surpass Estimates

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Adobe Inc. ADBE reported fourth-quarter fiscal 2020 non-GAAP earnings of $2.81 per share, which surpassed the Zacks Consensus Estimate of $2.65. The figure increased 9.3% sequentially and 22.7% on a year-over-year basis.

Adjusted revenues jumped 14% year over year to $3.42 billion. This upside was driven by strong demand for the company’s digital and creative software tools.

Also, revenues surpassed the Zacks Consensus Estimate by 1.9%.

Top Line in Detail

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

Subscription revenues came in at $3.1 billion (accounting for 91% of its total revenues), up 20.8% on a year-over-year basis.

Product revenues totaled $127 million (3.7% of revenues), down 24% year over year.

Services & other revenues came in at $182 million (5.3% of revenues), decreasing 26% year over year.

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

Segment Details

During the fourth quarter, the company created a new segment - Publishing and Advertising. This new segment merged Advertising Cloud with the existing Publishing segment.

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

Digital Media - This segment generated revenues of $2.50 billion, which increased 20% on a year-over-year basis. The segment comprises Creative Cloud and Document Cloud. Digital Media annual recurring revenues (ARR) were up $548 million from the prior quarter to $10.18 billion. Strength in mobile and overall web traffic drove the Digital Media business.

Creative Cloud (CC) generated $2.08 billion in revenues, reflecting 20% year-over-year growth. In addition, Creative ARR was up $425 million from the prior-year quarter to $8.72 billion. Growth drivers for the quarter were strong net new subscriptions across user segments and geographies amid the work-from-home environment. Also, strong performance in the imaging, video and stock category led to creative ARR growth.

Document Cloud (DC) generated $411 million revenues, up 21% from the year-ago quarter. Moreover, Document ARR came in at $1.46 billion. This was driven by strong demand for Acrobat subscriptions and demand, mainly through the Reader funnel. Also, significant momentum in Sign aided growth.

Digital Experience - This segment generated revenues of $819 million, up 10% on a year-over-year basis. Digital Experience subscription revenues were $696 million, up 14% year over year. The increase was driven by accelerating adoption of the Adobe Experience Cloud platform and app services, content, and commerce momentum.

Operating Details

Gross margin was 87.5%, which expanded 260 basis points (bps) on a year-over-year basis.

Adobe incurred operating expenses of $1.74 billion, reflecting a 14.1% year-over-year increase. As a percentage of total revenues, research & development, and general & administrative expenses decreased from the prior-year quarter, while sales & marketing and costs increased.

As a result, adjusted operating margin was 44.9%, reflecting an increase of 230 bps year over year.

Balance Sheet & Cash Flow

At fiscal fourth quarter-end, cash and short-term investment balance was $5.99 billion, up from $5.26 billion in the prior quarter. Trade receivables were $1.4 billion, up from $1.32 billion recorded in the fiscal third quarter.

Cash generated from operations was $1.78 billion versus $1.44 billion in the fiscal third quarter. During the reported quarter, the company repurchased 1.6 million shares.

Guidance

For first-quarter fiscal 2021, Adobe projects total revenues to be $3.75 billion. The Zacks Consensus Estimate for revenues is pegged at $3.36 billion. Adobe expects year-over-year revenue growth of 26% from Digital Media. Digital Experience segment revenues are expected to grow 19% on a year-over-year basis, while Digital Experience subscription revenues are likely to increase 22%.

Based on a share count of 484 million, management expects GAAP and non-GAAP earnings of $2.19 and $2.78 per share, respectively. The Zacks Consensus Estimate for non-GAAP earnings for the quarter is pegged at $2.65 per share.

Zacks Rank & Stocks to Consider

Currently, Adobe carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector include The Trade Desk Inc. TTD, Dropbox, Inc. DBX and Inuvo, Inc. INUV, 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 The Trade Desk, Dropbox, and Inuvo, Inc. is currently projected at 25%, 40.9% and 30%, respectively.

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