Adoption Of Cloud Services Helps Boost Adobe’s Revenues To A Record High
Adobe (NASDAQ:ADBE) posted its fiscal Q4 results on Thursday, December 14 after market close. Once again the company saw solid revenue growth, with a 24.7% increase to over $2 billion, above its guidance range. As a result, the stock price rose by close to 3.5% in after-market trading. The company continued to report growth in its cloud revenues, with Creative Cloud (CC) registering 30.6% growth in revenues during the quarter. Furthermore, Adobe’s annualized recurring revenue (ARR) reached nearly $5.39 billion for its digital media business, which includes Creative and Document Cloud products. The net ARR sequential increase in Q4 was $359 million and was driven by continued strength in the Creative Cloud and Document Cloud businesses. Digital Cloud Marketing revenue also grew by 18% year over year. Meanwhile, the company’s waning LiveCycle software revenues declined by 4% to $22.8 million, while the revenues for the print and publishing business were flat at $43.6 million. In this note, we examine some of Adobe’s key drivers and its outlook for fiscal Q1 and 2018.
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The company reported that it witnessed strong net new subscribers for CC during the quarter. The growth in CC subscriptions continued, as licensing revenues from all three segments (i.e. individual, team and enterprise term licensing agreements) grew. Growth was also fueled by strong performance in the SMB segment and international growth. Furthermore, a continued migration of the Creative Suite installed base bolstered subscription numbers. As a result, Adobe achieved record Creative revenue of $1.16 billion in Q4, which represents 58% of overall revenues. The company also reported that Creative Cloud ARPU grew quarter-over-quarter across all its product offerings in Q4.
Revenue For Marketing Platform Grows, Booking Improves
The Experience Cloud platform, which encompasses Adobe Marketing Cloud, Adobe Analytics Cloud, and Adobe Advertising Cloud, is the company’s second-biggest division and makes up 30% of its value, per our estimates. The company has scaled up the functionality and product offering of its marketing platform through organic and inorganic growth. While the company continues to integrate TubeMogul into its Marketing Cloud offering, it is adding Artificial Intelligence and Machine Learning functionality of its Sensei platform to the Marketing Cloud and analytics platform. In Q4, this division reported an 18% year-over-year increase in revenue to $549 million. The company stressed the importance of mobile digital marketing and has stepped up its mobile digital marketing capability with the industry’s first cross-channel advertising campaign management app, Adobe Advertising Cloud Mobile App.
Adobe said that in the trailing four quarters, data transactions for its Marketing Cloud solutions exceeded 186 trillion. Furthermore, the company is driving larger, multi-year and multi-solution customer contracts. As a result of larger engagements and longer implementation cycles, it is witnessing strong growth in deferred revenue and unbilled backlog for its Cloud divisions. Deferred revenue grew to a record $2.40 billion, up 24% year-over-year. However, the company reported strong sequential subscription bookings growth from Q3 to Q4, reflecting the seasonality in this business. As such, this division will likely report incremental growth in revenues going forward.
Document Cloud Services Buoys Revenues At Acrobat Family Division
The Adobe Acrobat family is the third largest division for Adobe and makes up around 10% of its value. In the past few quarters, revenues from this division have grown, primarily due to the adoption of Document Cloud services which have subscription fees spread over the period of usage. Q4 Document Cloud services revenue grew by 10% to $234 million and the Document Cloud ARR grew to $614 million in the quarter. We expect Document Services’ ARR to drive revenue growth in the Acrobat family division in the future as it continues to add new functionality in Adobe Sign.
Outlook For Q1 and 2018
Adobe has guided for revenues of $2.04 billion for the first quarter of fiscal 2018. It expects its GAAP EPS to be around $1.15, and non-GAAP EPS to be around $1.27. The company expects to achieve approximately $275 million of net new Digital Media ARR, and expects Digital Media and Digital Marketing Cloud revenues to grow by 25% and 15%, respectively.
For 2018, the company expects its revenues to increase to $8.725 billion. It expects GAAP EPS to be around $4.40 and non-GAAP EPS to be around $5.50. For the full year, Adobe expects to achieve approximately $1.1 billion of net new Digital Media ARR. It expects Digital Media and Digital Marketing Cloud revenues to grow by 23% and 15%, respectively.
We are in the process of updating our Adobe Model. At present, we have a $145 price estimate for Adobe, which is around 15% lower than the current market price.
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