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Adobe Creates Record Earnings: Its Head Is in the Clouds

By Danny Vena - Jun 22, 2017 at 6:45PM

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Adobe is benefiting from its move to cloud-based subscriptions and increases in revenue per user. These combined to produce a record quarter for the company, and investors cheered.

Adobe Systems Incorporated (ADBE -2.87%) issued its financial report Tuesday after the market closed, and investors seemed pleased with the results. Since the company moved to a subscription model several years ago, Adobe has continued to reap the benefits of its decision. Removing the uncertainty associated with the timing of purchases and licensing deals have allowed the company to focus on providing creative software solutions to its users while moving the majority of its business into the cloud. 

The company produced record revenue of $1.77 billion, up from $1.4 billion, a 27% increase over the prior-year quarter. Net income increased to $374 million, up from $244 million, growing 53% year over year. Earnings per share hit $0.75, up from $0.48, for a 56% increase. These results not only surpassed investors' expectations but also exceeded the company's own guidance, which called for earnings of $0.66 on revenue of $1.73 billion. 

Adobe Sensei cloud presentation.

Adobe continues to leverage its cloud. Image source: Adobe.

Sunshine on a cloudy day

Adobe saw growth across its business segments. Digital Media, which produced the bulk of the company's sales, hit $1.2 billion, a 29% increase over the prior-year quarter, while digital marketing exceeded $516 million, good for 25% year-over-year growth. Within the digital media segment, the company achieved its first ever quarter exceeding $1 billion in creative revenue, a 34% increase from last year. 

Perhaps even more impressive was Adobe's recurring revenue, which accounted for 86% of all revenue in the current quarter and increased to an annual run rate of $4.56 billion. The company's deferred revenue grew to a record $2.07 billion, a 23% jump. 

Adobe CEO Shantanu Narayen was pleased with the results. "Digital transformation continues to be the burning agenda for creative professionals, enterprises, governments, and educational institutions," he said. "Adobe is now the go-to company for creating world-class digital customer journeys from design to delivery to measurement and monetization."

On Cloud Nine

Adobe also reported that the integration of video advertiser TubeMogul, which the company acquired late last year, was progressing well and would be part of Adobe's advertising cloud. While it doesn't produce much in the way of revenue yet, it shows great promise for the future.

For the coming quarter, Adobe expects to produce revenue of $1.8 billion, which would be a 24% year-over-year increase. It expects earnings per share of $0.72, which would represent 33% growth. The company also increased its forecast for the full year and now expects total revenue to increase by 23%.

The company continued its shareholder-friendly ways, buying back an additional 2 million shares in the most recent quarter. That exhausts the prior $2 billion share-repurchase authorization, and the company will begin utilizing the new $2.5 billion authorization the board approved in January. These buybacks have reduced the share count by 1.5% over the past three years.

The Adobe logo and the caption "plus SkyBox," overlaid over an image of a bridge and skyline.

Adobe acquires SkyBox from Mettle. Image source: Adobe.

Adobe continued to develop its virtual-reality (VR) capabilities, as it announced that it has acquired all of Mettle's SkyBox technologies and plug-ins, which make it easier for creators to build titles and effects into 360-degree videos and VR applications. Users were already using some of these tools in Adobe's Premiere Pro and After Effects, and this latest move will find these tools fully integrated into future releases. Mettle co-founder Chris Bobotis will be making the move to Adobe as well. 

This cloud has a silver lining

Adobe has executed on its plan, with a continued positive impact on the company's results. Adobe not only continues to increase its user base, but its average revenue per user is also growing as subscribers find new ways to leverage its creative suite of products. No clouds on this horizon.

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