WORK - Adobe Is Well Positioned to Capture Massive Opportunity Ahead
Despite a troubled macroeconomic surrounding, Adobe (NASDAQ: ADBE) topped both top and bottom Wall Street’s fourth-quarter targets as well as guided higher for the undergoing quarter and fiscal year 2021. The pandemic has underscored the ongoing importance of digital-collaboration tools such as videoconferencing by Zoom Video Communications (NASDAQ: ZM), teamwork through Microsoft Teams (NASDAQ: MSFT) and Slack Technologies Inc (NYSE: WORK) and of course, Adobe Spark offering a wide range of design and media-creation applications. Adobe’s blistering quarterly performance illustrates a digital media business that is firing on all cylinders with its shares up 45% this year, while announcing additional $15 billion in buyback authorization.
Q4 Earnings
For its fiscal fourth quarter ended November 27 th , Adobe achieved record quarterly revenue of $3.42 billion, up 14% YoY from $3 billion a year ago. Net income was $2.25 billion, or $4.64 a share, rising from $852 million, or $1.74 a share from last year’s comparable quarter. Adjusted earnings per share were $2.81, rising from last year’s $2.29 or more precisely, 23% YoY. Analysts surveyed by FactSet had expected adjusted earnings of $2.66 a share on revenue of $3.36 billion. The results confirm the remarkable the resiliency of Adobe’s business, in addition to its ability to derive and react on insights from real-time data, as its Chief Financial Officer John Murphy told MarketWatch.
As a testament to its operational excellence, cashflows from operations were $1.78 billion, achieving yet another record as Adobe and Microsoft have gone for a piece of the customer relationship management pie which has historically been Salesforce’s (NYSE:CRM) domain. Adobe also offers e-signature software which is DocuSign’s (NASDAQ:DOCU) territory, as it boasts over a half million paying customers. But with its $200 billion market cap, Adobe is a much larger company than DocuSign which is valued at $40.9 billion.
Stock drops despite earnings beat
Adobe’s Digital Experience business that includes the company’s marketing software and services saw revenue rise 10% to $877 million in the reported quarter. The company’s Digital Media business, that includes Creative Cloud and Document Cloud businesses, grew 20% YoY in the fourth quarter to $2.5 billion in revenue. While these businesses are doing great, Advertising Cloud is experiencing headwinds as it continues to wind down its transaction-driven ad network business. The San Jose, California-based company stock posted an all-time high in early September but saw its stock drop 1% in pre-market trading. But an earnings or revenue beat or miss may not the sole reason for a stock moving higher or lower. Many stocks lose ground despite an earnings beat simply because certain factors disappointed investors. Likewise, unforeseen catalysts can help stocks gain despite an earnings miss. There was nothing gloomy amid Adobe’s just-ended fiscal 2020 in which earnings were an adjusted $10.10 a share on record annual revenue of $12.87 billion which marks a 15% YoY growth.
Outlook
For fiscal 2021, Adobe expects adjusted earnings of $11.20 a share on $15.15 billion in revenues, topping both $11.17 and $14.78 billion that Wall Street had predicted. This positive outlook hasn’t been solely fuelled by the pandemic that accelerated the adoption of digital frameworks as Adobe has already enjoyed many years of revenue growth long before the pandemic. Its financial performance is merely a testament to its excellent products and successful strategy shift to software-as-a-service (SaaS) subscription revenue model.
The San Francisco-based company is the undisputed leader when it comes to creative solutions, digital documents and customer experience management. Moreover, each of these categories keeps on expanding as we speak. Therefore, there is no doubt that the software expert is perfectly equipped to capture the massive market opportunity well beyond this unprecedented year that only further accelerated the digital revolution.
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