Adobe Beats Second Quarter Estimates As Working From Home Becomes The Norm

Adobe Beats Second Quarter Estimates As Working From Home Becomes The Norm
June 15, 2020

 

Software firm Adobe Inc. (Nasdaq: ADBE) reported better-than-anticipated fiscal 2020 second-quarter earnings and revenue as work from home surged due to COVID-19, boosting demand for its digital products. However, Adobe issued a lower-than-anticipated Q3 earnings and revenue outlook. The stock of Adobe closed at $406.54, reflecting a gain of $18.87 or 4.87% from earlier close.

The San Jose, California-based company, reported second-quarter revenue of $3.128 billion, an increase from $2.744 billion in the comparable quarter last year.

For the quarter ended May 29th, 2020, the company posted net earnings of $1.100 billion, or $2.27 per share, compared with a net income of $633 million, or $1.29 a share, in the prior-year period.

Excluding stock-based and deferred compensation expense, amortization of intangibles, and income tax adjustments, 2Q 2020 non-GAAP net income increased to $1.187 billion, from $901 million in the year-ago period. On a per-share basis, non-GAAP net income rose to $2.45 per share, from $1.83 a share last year.

Analysts polled by FactSet had forecast earnings of $2.32 per share on revenues of $3.16 billion. Back in March, the company had forecast earnings of $2.35 per share on revenues of roughly $3.18 billion.

Segment-wise,

  • Subscription revenue was $2.874 billion, compared with $2.456 billion.
  • Product revenue fell to $128 million, from $153 million last year.
  • Services and support revenue was $126 million, down from $135 million in the prior-year period.

Specifically, Digital Media revenue recorded 18% y-o-y increase to $2.23 billion. While Creative revenue rose to $1.87 billion, Document Cloud revenue stood at $360 million.

Digital Media Annualized Recurring Revenue (ARR), a SaaS (Software-as-a-Service) metric, increased to $9.17 billion at the end of Q2, reflecting a q-o-q growth of $443 million and surpassing analysts’ estimate of $9.11 billion. Creative ARR increased to $7.93 billion, while Document cloud ARR surged to $1.24 billion. The Street analysts’ had anticipated ARR for Creative and Document Cloud at $7.92 billion and $1.19 billion, respectively.

Commenting on the ARR figures, John Murphy, Adobe chief financial officer, said that historically high ARR underlined “how mission-critical creative and document solutions are in engaging remotely.” 

Digital Experience revenue grew 5% y-o-y to $826 million. Digital Experience subscription revenue increased 8% y-o-y to $707 million. Digital Experience subscription revenue, barring Advertising Cloud revenue, grew 18% y-o-y.

During the second quarter, cash flows from operations were $1.18 billion. Notably, Adobe repurchased roughly 2.60 million shares during the second quarter.

Regarding the impact of work from home environment on business, Adobe’s 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 toward ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”

For the current quarter, the company expects 3Q 2020 adjusted earnings of roughly $2.40 per share on revenues of approximately $3.15 billion. The Wall Street analysts anticipate earnings of $2.46 per share on revenues of $3.26 billion. The company did not issue any forecasts for fiscal 2020, pointing to the “macroeconomic environment and the strategic shifts for advertising cloud.”

The upbeat results and slightly weak Q3 outlook is expected to keep the stock range-bound with a slight bullish bias.

The price chart indicates that the stock has broken above the ascending triangle pattern. The Chaikin money flow indicator also has a positive reading. Therefore, we are anticipating the stock to gain further in the short-term.

adb - technical analysis - 15th June 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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