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What Investors Should Know About Adobe's 2nd-Quarter Results

Adobe Inc. (NASDAQ:ADBE) released its second-quarter results after the market closed on June 11. The software company beat earnings estimates, but missed revenue expectations.

Earnings highlights

The San Jose, California-based company posted adjusted earnings of $2.45 per share, which exceeded the $1.83 per share reported in the year-ago quarter. Analysts had anticipated earnings of $2.32 per share. Revenue of $3.13 billion grew 14% from the prior-year quarter, but fell short of expectations.


Reflecting on the company's performance, President and CEO Shantanu Narayen said:


"Adobe's strategy to empower customers to create the world's content, automate critical document processes and enable enterprises to engage with their customers digitally, drove record revenue in Q2. The tectonic shift towards 'all things digital' across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis."



Segment performance

The Digital Media sector saw revenue grow 18% in the reported quarter to $2.23 billion. Within the segment, the Creative Cloud division sales grew to $1.87 billion, while Document Cloud sales came in at $360 million. The annualized recurring revenue, a metric that shows the value of a subscription-based company's subscriber base, for digital media group climbed to $9.17 billion.

"We drove record Digital Media net new ARR for Q2, highlighting how mission-critical creative and document solutions are in engaging remotely," Vice President and Chief Financial Officer John Murphy said.

In the Digital Experience segment, revenue of $826 million surged 5% on a year-over-year basis. The segment also includes Adobe Experience Cloud, which witnessed subscription revenue growth of 8% to $707 million.

The company reported revenue in three categories, namely subscription, product and services and support. Subscription sales increased to $2.87 billion. However, product revenue was down from $152.8 million last year to $128 million and service and support revenue was flat at $126 million.

Looking ahead

Adobe said that Creative Cloud and Adobe Sign will continue to play an active role in the near term, given that the Covid-19 pandemic and the resulting lockdowns has compelled businesses across the U.S. to do more work online.

For the third quarter, the company anticipates total revenue of $3.15 billion and adjusted earnings per share of $2.40.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.