Creative Cloud and Document Cloud adoption drives Digital Media’s ARR to $3.70 billion
Creative software company Adobe Systems Inc. (NASDAQ: ADBE) reported its Q3 FY16 financial results on September 20th, 2016.
The San Jose, California-based Company offers products and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences. It operates through three segments: Digital Media, Digital Marketing, and Print and Publishing. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content. Its Digital Marketing segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. Its Print and Publishing segment addresses market opportunities ranging from the diverse authoring and publishing needs of technical and business publishing to its legacy type and original equipment manufacturer (OEM) printing businesses. Adobe has a strategic partnership with comScore Inc. Read more about Adobe’s financial results below.
Q3 FY16 financial highlights
During Q3 FY16, Abode’s revenue jumped by a record 20% Y-o-Y to $1.46 billion. Adobe has achieved double-digit revenue growth in the past five quarters as the company benefits from more predictable revenue, driven by a shift to selling software on a subscription basis over the past few years.
In the Digital Media segment, revenue grew by a record 29% Y-o-Y to $990 million, with Creative revenue growing 39% Y-o-Y to a record $803 million during Q3 FY16. Creative Cloud contains popular software such as Photoshop, Illustrator and InDesign.
Strong Creative Cloud and Document Cloud adoption drove the Digital Media segment’s annualized recurring revenue (ARR) to $3.70 billion during the quarter, a sequential quarterly increase of $285 million. Creative ARR was driven by the continued migration of Creative Suite users, the addition of new services such as Adobe Stock, and new customer acquisition in the education and hobbyist photography markets.
During Q3 FY16, Abode’s Document Cloud, the leading digital document service, reported revenue of $187 million, and combined with Acrobat adoption reflected in Creative Cloud, Document Cloud continues to drive revenues in future quarters. Document Cloud ARR during the reporting quarter grew to $442 million, which represents the highest sequential quarterly growth in 2016. This growth was driven by adoption of Acrobat subscriptions and value-add services such as Adobe Sign.
Adobe Marketing Cloud solutions, including Adobe Campaign, Adobe Audience Manager, and Adobe Media Optimizer, achieved a record 10% Y-o-Y growth in revenue to $404 million during the reporting quarter. Adobe Marketing Cloud subscriptions revenue grew by over 25% Y-o-Y during Q3 FY16.
During Q3 FY16, mobile remained a key market trend for this business; mobile data transactions grew to 52% of total Adobe Analytics transactions during the reporting quarter. Some of the recent customer wins for Marketing Cloud include T-Mobile, Nordstrom, Subaru, and SunTrust Bank.
More importantly, 83% of Adobe’s Q3 FY16 revenue from recurring sources, an all-time high.
During Q3 FY16, Abode’s operating income jumped 50% Y-o-Y and net income soared 55% on a GAAP-basis. On a non-GAAP basis, Adobe’s operating income grew 36% and net income grew 37% during the reporting quarter. Diluted EPS was at $0.54 on a GAAP-basis, and $0.75 on a non-GAAP basis.
Adobe’s trade day sales outstanding (DSO) was 45 days, compared to 44 days in the year-ago quarter, and 43 days in Q2 FY16. Deferred revenue grew to a record $1.8 billion, up 38% year-over-year.
Cash at hand: Adobe ended Q3 FY16 with cash and short-term investment position of $4.45 billion, compared to $4.32 billion at the end of Q2 FY16. Cash flow from operations was at a record $518 million during the reporting quarter.
Share repurchases: During Q3 FY16, Adobe repurchased 3.5 million shares for $344 million, leaving roughly $800 million remaining under its current repurchase authorization.
Acquisition of Livefyre: Adobe completed the acquisition of Livefyre, a service best known for its online commenting system, in May 2016. Adobe plans to integrate Livefyre into Experience Manager, its content management service for building web sites and basic mobile apps. Livefyre will also be integrated across Adobe Marketing Cloud to make user-generated content available across all eight digital marketing solutions. The buyout is expected to be completed over the next few months. With this acquisition, Adobe customers will be able to unify the best social media content with branded experiences created in Adobe Creative Cloud and community-driven content in Adobe Behance and Adobe Stock.
Adobe has been selected as a component of the Dow Jones Sustainability World Index for the first time during Q3 FY16.
Guidance for Q4 FY16 and full year FY16
For Q4 FY16, Adobe expects revenue of $1.55 billion to $1.60 billion, GAAP EPS of $0.60 to $0.66, and adjusted EPS of $0.83 to $0.89. Adobe also continues to expect digital media ARR of $4 billion exiting FY16.
Adobe’s stock ended the day at $107.78, jumping 7.12%, at the close on Wednesday, September 21st, 2016, having vacillated between an intraday high of $108.22 and a low of $105.80 during the session. The stock’s trading volume was at 8,762,096 for the day. The Company’s market cap was at $54.08 billion as of Wednesday’s close.