Adobe (NASDAQ: ADBE) has done it again. The company has made a practice of exceeding its own guidance and analysts' expectations, and this quarter was no different. The creative-software giant reported its 17th consecutive quarter of record revenue, and the company's growth shows no signs of slowing.
Shares jumped more than 5% in the immediate wake of Adobe's better-than-expected showing, so let's look at what has investors so enthusiastic.
Image source: Adobe.
For the just-completed fiscal second-quarter, which ended May 31, Adobe reported record quarterly revenue of $2.74 billion, up 25% year over year, easily surpassing management's forecast of $2.7 billion, which matched analysts' consensus estimates for the quarter.
That's not all. Adobe generated adjusted earnings per share of $1.83, which sailed past the company's forecast of $1.77 and analysts' expectations for $1.78.
In a scene that's been replayed over and over, Adobe saw strong increases across its portfolio of products, helping boost its already strong revenue growth. Sales from its digital media segment grew to $1.89 billion, up 22% year over year, while the digital experience segment produced record revenue of $784 million, up 34% compared with the prior-year quarter. Both segments met or exceeded Adobe's guidance from last quarter, which called for growth of 20% and 34%, respectively.
The creative software giant produced strong growth across its business units. Within the digital media segment, both the Creative Cloud and Document Cloud notched increases. Revenue from the creative business grew to $1.59 billion, up 22% year over year, while the Document Cloud achieved a record $296 million, up 22% from the prior-year quarter. The digital experience segment represented the strongest growth, generating a record $784 million, up 34% year over year.
Annualized recurring revenue (ARR) in the digital media segment grew to $7.47 billion, up $406 million during the quarter. Creative ARR increased by $341 million to $6.55 billion, and Document Cloud ARR added $65 million, climbing to $921 million. All told, 91% of the company's revenue during the quarter came from recurring sources.
A Spark for future growth
On the conference call to discuss the results, Adobe's President and CEO Shantanu Narayen credited a number of factors with contributing to the company's strong and ongoing growth. "The power of our brand, the continuous innovation in our products and services, the deep investment we're making in our technology platforms, and a robust ecosystem of partners are enabling us to serve millions of customers around the globe," Narayen said.
The company is also targeting new segments of users to drive future growth. One area highlighted on the call was Adobe Spark, the company's online and mobile design application. Narayen said the app helps turn ideas into compelling stories with ease and "is rapidly gaining popularity among creators from the classroom to the boardroom." Spark traffic more than doubled year over year, and Adobe expanded the apps global footprint, offering support in five new languages, including Brazilian-Portuguese, French, German, Italian and Spanish.
Adobe appears to be targeting another record-setting performance next quarter. For its fiscal third quarter, Adobe is guiding for revenue of about $2.8 billion, which would represent 22% year-over-year growth, and adjusted earnings per share of $1.95.
To put that into the context of Wall Street sentiment, analysts' consensus estimates were calling for revenue of $2.83 billion and earnings per share of $2.05. While both are higher than management's forecast, investors seem to understand that Adobe has consistently provided conservative guidance, which it then soundly thrashes.
Adobe continues to make all right moves to grow its business, away from the limelight of most tech stocks. That's OK though, as Adobe likes to let its results do the talking: the stock has gained more than 30% so far this year, nearly double the results of the broader market.
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