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Adobe to leverage its cloud services market growth to achieve goals

Puneet Sikka

Better than expected results for Adobe: Focus on Cloud offerings (Part 5 of 5)

(Continued from Part 4)

Adobe’s outlook suggest healthy company growth

As per the outlook provided by Adobe (ADBE) for the next 3 years, the company is confident of increasing its earnings at a fast rate. Adobe expects its non-GAAP EPS to increase at a fast rate from $0.56/share in FY 2013 to at least $3.00/share by FY 2016. The company is confident that the adoption of growth-oriented subscription model for its Creative Cloud business as well as its Digital Marketing business would help it to achieve those goals.

Adobe targets revenue growth rate of 20%

Adobe is targeting a revenue compounded average growth rate (CAGR) for its Digital Media segment to be around 20% between FY 2014 and FY 2016. This growth will be driven by the increase in Creative Cloud subscriptions, which it expects to increase from 1.84 million in 1Q 2014 to 3 million by FY 2014 and at least 4 million by FY 2015.

For its Marketing Cloud segment of its Digital Marketing business, it expects an even better CAGR of 25% between FY 2014 and FY 2016. Adobe expects this growth on the back of annual bookings growth of 30% for its Marketing Cloud segment. Overall Adobe expects a revenue CAGR of 20% between FY 2014 and FY 2016 for the company.

During the conference call to announce the Q4 2013 earnings, Mark S. Garrett, Chief Financial Officer and Executive Vice President of Adobe mentioned, “In our Digital Media segment, customer adoption of Creative Cloud is proceeding more quickly than we anticipated. Subscriptions and ARR have grown faster than expected and, as a result, perpetual Creative revenue has fallen off more quickly.”

“Our confidence in increasing these targets is based on our strong execution, our increased investments in the business and the large addressable markets we are focused on with our Adobe Marketing Cloud solutions. To drive this substantial growth, we will continue to invest in the business. During the transition, while reported revenue has declined, it has been more than offset by growth in ARR. We believe ARR will continue to grow, and reported revenue will increase sequentially beginning in the second half of FY 2014″.

Adobe looks to grow on the back of cloud services market growth

Achieving a revenue CAGR of 20% for Adobe should not be difficult, as the overall cloud services market is undergoing fast growth. According to IDC, the overall cloud services market will grow from $47.4 billion in 2013 to $107 billion by 2017, a CAGR of 23.5%. Not only Adobe, but other large cap companies such as SAP (SAP), Microsoft (MSFT), Google (GOOG), and Oracle (ORCL) are looking to ride on the cloud services bandwagon.

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