What To Expect From Adobe’s Third Quarter Earnings

by Trefis Team
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Adobe (NASDAQ:ADBE) is scheduled to announce its fiscal Q3 2018 results on Thursday, September 13. The company has reported a solid 24% increase in net revenue to $4.2 billion through the first half of the year. Adobe has been a high-growth stock in the last year, with the stock price increasing from $155 to $266 during the period – a more than 70% increase. The rally was driven by successive quarters of positive results as well as a robust outlook for FY’18. The trend is expected to continue through the end of the current year, particularly for Digital Experience offerings. We have summarized our expectations for the company’s third quarter FY’18 results on our interactive earnings preview dashboard for Adobe. You can change expected segment revenue and margin figures for Adobe to gauge how changes will impact its expected EPS for the quarter.

Key Growth Drivers

In the first half of the year, Adobe reported a 30% y-o-y increase in subscription revenues to $3.7 billion – a trend consistent in recent quarters. Comparatively, product revenues were down 9% to $323 million and services revenues were up by a modest 2% to $235 million. Going forward, Adobe’s subscription-based revenues from the Digital Media segment are likely to continue to grow rapidly and drive top-line growth. Adobe’s management expects net revenues to increase 25% to $2.2 billion in the third quarter, keeping up the growth spree. We forecast full year revenues to increase almost 23-24% for the full year as well.

The Digital Media segment includes revenues from Creative Cloud and Adobe Document Cloud. In recent years, Creative Cloud revenues have increased in the high double digits, driven by increases in individual, team and enterprise subscriptions. This trend has continued through FY’18 thus far. We expect Digital Media to remain the key growth driver for Adobe in the coming quarters, as standalone product sales are likely to remain low. It should be noted product sales form less than 10% of Adobe’s total revenues, due to which the expected slowdown in product revenues should have a minimal impact on earnings.

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