Adobe Scores Record Revenue and EPS Growth

Creative revenue grew 33% Y-o-Y to a record $886 million during Q4 FY16

a1Creative software company Adobe Systems Inc. (NASDAQ: ADBE) reported its Q4 FY16 financial results on December 15th, 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.

Q4 FY16 financial highlights

During Q4 FY16, Abode’s revenue jumped by a record 23% Y-o-Y to $1.61 billion. Adobe has achieved double-digit revenue growth in the past six 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 was at $1.08 billion, with Creative revenue growing 33% Y-o-Y to a record $886 million during Q4 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 $4.01 billion during the quarter, a sequential quarterly increase of $316 million. Creative ARR was driven by the continued migration of Creative Suite users, the addition of new services such as a2Adobe Stock, and new customer acquisition in the education and hobbyist photography markets.

During Q4 FY16, Abode’s Marketing Cloud solutions, including Adobe Campaign, Adobe Audience Manager, and Adobe Media Optimizer, reported record revenue growth of 32% to $465 million, and combined with Acrobat adoption reflected in Creative Cloud, Document Cloud continues to drive revenues in future quarters.

Adobe’s Digital Marketing segment revenue was at $488.5 million, while the Print and Publishing segment brought in $43.7 million during the reporting quarter. In terms of geography, the Americas accounted for $921.7 million (57%), the EMEA for $452.7 million (28%), and Asia for $234 million (15%) of the total revenue in Q4 FY16.

a3For Q4 FY16, Abode’s operating income soared 63% Y-o-Y and net income soared 79% on a GAAP-basis. On a non-GAAP basis, Adobe’s operating income grew 44% and net income grew 45% during the reporting quarter. Diluted EPS was at $0.80 on a GAAP-basis, and $0.90 on a non-GAAP basis.

Adobe’s cash flow from operations was at a record $696 million during the reported quarter.

FY16 financial highlights

During FY16, Abode’s revenue jumped by a record 22% Y-o-Y to $5.85 billion. The Digital Media segment’s annualized recurring revenue (ARR) grew by $1.13 billion to end the year with $4.01 billion. Adobe Marketing Cloud revenue grew by a robust 20% Y-o-Y to $1.63 billion. The company’s deferred revenue grew to an all-time high to $2.01 billion, and unbilled backlog grew to approximately $3.42 billion during FY16.

On a segmental basis, Digital Media accounted for $3.94 billion (67%), Digital Marketing for $1.73 billion (30%), and Print and Publishing for $176 million (3%) during FY16. In terms of geography, the Americas accounted for $3.40 billion (58%), the EMEA for $1.61 billion (28%), and Asia for $835.2 million (14%) of the total revenue during FY16.

Adobe’s net income came in at $1.17 billion, GAAP diluted EPS was at $2.32 and non-GAAP diluted EPS was at $3.01 during the year. The company also generated operating cash flow of $2.2 billion during the year.

Other highlights

a4Share repurchases:

During Q4 FY16, Adobe repurchased 3.2 million shares for $331 million. In FY16, Adobe repurchased 10.4 million shares, returning $10.1 billion to shareholders.

Adobe completes acquisition of TubeMogul:

a5On November 10th, 2016, Adobe announced that it has entered into a definitive agreement to acquire TubeMogul for approximately $540 million net of debt and cash. Under terms of the agreement, Adobe will commence a cash tender offer to acquire all of the outstanding common stock of TubeMogul for $14 per share.

TubeMogul is a leader in video advertising, with a single platform that enables brands and agencies to plan and buy video advertising across desktops, mobile, streaming devices and TVs. Adobe’s acquisition of TubeMogul will create the first end-to-end independent advertising and data management solution that spans TV and digital formats, simplifying what has been a complex and fragmented process for the world’s biggest brands.

Video consumption is exploding across all devices and video advertising is the fastest growing advertising category. Adobe is the leader in video content creation and delivery with its Premiere Pro CC and Primetime solutions. Adobe’s acquisition of TubeMogul will enable brands to capitalize on the meteoric shift to online video.

The acquisition of TubeMogul will strengthens Adobe’s leadership in digital marketing and advertising technology. Building upon its expertise in search, display and social advertising planning and delivery with Adobe Media Optimizer, the addition of TubeMogul will enable Adobe’s customers to maximize their video advertising investments across desktop, mobile, streaming devices and TV.

TubeMogul’s video advertising platform, combined with Adobe Marketing Cloud, will give customers access to first-party data and measurement capabilities from Adobe Audience Manager, Adobe’s data management platform, and Adobe Analytics, respectively. The acquisition was completed on December 19th, 2016, and TubeMogul CEO Brett Wilson will continue to lead the TubeMogul team as part of Adobe’s Digital Marketing business.

Guidance for Q1 FY17 and full year FY17

For FY17, Adobe expects to add about $225 million of net new Digital Media ARR in Q1 FY17, followed by sequential growth of net new ARR in Q2 FY17. The Company also expects revenue and EPS to grow sequentially each quarter, with the largest sequential increase in Q4 FY17.a6

For Q1 FY17, Adobe expects to achieve approximately $225 million of net new Digital Media ARR. Digital Media segment’s revenue is forecasted to grow roughly 19% Y-o-Y and Adobe Marketing Cloud revenue is expected to grow roughly 20% Y-o-Y.a7

Stock Performance

a8Adobe’s stock ended the day at $105.77, gaining 0.46%, at the close on Tuesday, December 20th, 2016, having vacillated between an intraday high of $105.88 and a low of $104.76 during the session. The stock’s trading volume was at 2,194,152 for the day. The Company’s market cap was at $53.38 billion as of Tuesday’s close.

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