Adobe shares have been punished amid the bear market correction, with its stock (ADBE) declining 15% over the past six months, trailing the 3.66% decline in the S&P 500 index. But can the company regain its momentum? The digital cloud giant giant is set to report first quarter fiscal 2023 earnings results after the closing bell Wednesday.
Despite the company benefiting from the massive secular digitization trend, the company has been punished amid the recent correction in technology stocks. Meanwhile, the company has executed impressively, producing strong earnings for the fourth quarter, including record revenue of $4.53 billion, which beat analyst expectations by nearly $30 million.
Adobe announced a record $20 billion deal for Figma, a software company that has built its name as a forward-thinking and collaborative design platform, and was once seen as a formidable competitor to Adobe in the creative apps market. “Adobe’s greatness has been rooted in our ability to create new categories and deliver cutting-edge technologies through organic innovation and inorganic acquisitions,” said Shantanu Narayen, chairman and CEO of Adobe. "The combination of Adobe and Figma is transformational and will accelerate our vision for collaborative creativity.”
As it has done in previous years, Adobe has taken a major competitor off the market and brought it under its own umbrella. From an organic perspective, the company continues to benefit from strong new user adoption and subscription revenue. The management continues to be strategic in its long-term approach. On Wednesday, investors will want to know how this deal can impact the top and bottom lines in the quarters ahead.
For the quarter that ended February, Wall Street expect the San Jose, Calif.-based company to earn $3.68 per share on revenue of $4.62 billion. This compares to the year-ago quarter when earnings came to $3.37 per share on revenue of $4.26 billion. For the full year, ending in November, earnings are expected to rise 11.67% year over year to $15.31 per share, while full-year revenue of $19.26 billion would climb 9.4% year over year.
Thanks to its diversified software offering, Adobe extracts roughly 90% of its revenue from subscription products, namely its two main operating segments: Digital Media and Digital Experience. The latter segment, accounting for more than 70% of its total revenues, remains the driving force behind Adobe’s growth trajectory, particularly due to growing adoption of its enterprise services which is bringing in more customers.
The stock went on a strong run in mid December after the company reported delivered a beat on both the top and bottom lines. The company reported an adjusted EPS of $3.60, rising 13% year over year and beat Street estimates by 10 cents. Q4 revenue increased 10% to $4.52 billion, topping expectations by more than $400 million. Adobe's Digital Media segment, which includes Creative Cloud design software subscriptions, delivered revenue of $3.3 billion, up 8%.
Just as impressive, the Digital Media segment generated annualized recurring revenue of $576 million, ending the the quarter with $13.97 billion. The Creative segment posted revenue of $2.68 billion, which grew 8% year over year, while the Document Cloud revenue was $619 million, marking 16% year-over-year growth. Creative ARR grew to $11.60 billion and Document Cloud ARR grew to $2.37 billion.
This was an all-around solid quarter, underscoring how the company has emerged stronger and more profitable amid its cloud transition. On Wednesday the market will want to see whether Adobe can build on these strong numbers and whether the company’s deal for Figma will be approved by regulators and be accretive to Adobe’s bottom line much sooner than anticipated.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio