Will Adobe's (ADBE) Q3 Earnings Gain From Digital Media?
Adobe’s ADBE third-quarter fiscal 2023 results, scheduled to be released on Sep 14, are likely to reflect the strength of its Digital Media segment.
Digital Media has been the key driver behind the company’s growth on the back of its Creative family of products and Document Services products.
The company’s persistent efforts to strengthen its content management capabilities are expected to have continued driving growth in the Digital Media segment in the to-be-reported quarter.
The segment under discussion generated revenues of $3.51 billion in second-quarter fiscal 2023, which improved 10% on a year-over-year basis.
For third-quarter fiscal 2023, Adobe expects Digital Media revenues in the band of $3.55-$3.57 billion. The Zacks Consensus Estimate for the same is pegged at $3.6 billion, indicating growth of 10.2% year over year.
Click here to know how the company’s overall fiscal third-quarter results are likely to be.
Adobe Inc. Price and EPS Surprise
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Factors to Consider
Solid momentum across Adobe Creative Cloud and Document Cloud is expected to have driven top-line growth for the Digital Media segment in the to-be-reported quarter.
Adobe’s growing momentum in generative AI, on the back of Firefly, might have remained a major positive. The integration of generative AI capabilities into Photoshop, Illustrator and Adobe Express is likely to have contributed well to the performance of Creative Cloud.
The growing proliferation of 3D and the Metaverse platform, which have been creating demand for new content categories and styles, is anticipated to have been a major tailwind. Strength in Lightroom mobile and the expansion of Frame.io are likely to have been a positive.
Frame.io’s integration into creative software like Adobe Photoshop, Adobe Premier Pro, After Effects and other Adobe Creative Cloud applications is likely to have driven growth.
Increasing traffic on the Adobe Express platform is expected to have aided the performance of Creative Cloud.
The Zacks Consensus Estimate for fiscal third-quarter Creative Cloud revenues is pegged at $2.89 billion, reflecting growth of 10.1% from the year-ago quarter.
This apart, solid momentum across the Acrobat ecosystem on the back of growing Acrobat verb searches and PDF consumption via Chrome and Edge extensions might have bolstered the monthly active user base of Acrobat Web in the quarter under review. This, in turn, is expected to have driven Document Cloud’s revenue growth.
The growing demand for PDF collaboration services might have been a tailwind. Solid demand for Adobe Scan and Adobe Sign is likely to have benefited Document Cloud in the quarter under review.
The Zacks Consensus Estimate for fiscal third-quarter Document Cloud revenues is pegged at $671 million, reflecting growth of 10.5% from the year-ago quarter.
All the above-mentioned factors are expected to have contributed well to Creative annualized recurring revenues (“ARR”) and Document Cloud ARR, which, in turn, are anticipated to have driven growth in Digital Media ARR in the to-be-reported quarter.
The company’s net new ARR in the Digital Media segment is projected to be $410 million for the quarter under review.
Zacks Rank & Stocks to Consider
Currently, Adobe carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Asure Software ASUR, Arista Networks ANET and Badger Meter BMI. Asure Software sports a Zacks Rank #1 (Strong Buy), and Arista Networks and Badger Meter carry a Zacks Rank #2 (Buy). 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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