Adobe Systems Caps a Record Year

The creative software leader finished its latest fiscal year on a high note. Here's what investors need to know.

Steve Symington
Steve Symington
Dec 14, 2018 at 8:52AM
Technology and Telecom

Adobe Systems (NASDAQ:ADBE) announced yet another better-than-expected quarter on Thursday after the market closed, highlighting both the fruits of its recent strategic acquisitions, and broad-based strength from its core suite of creative software products. Adobe also offered an early look at its goals for the coming year.

With shares of the software giant down modestly in after-hours trading as of this writing -- but still up nearly 40% so far in 2018 -- let's get more color on what Adobe accomplished since its last quarterly update in September.

A smiling Adobe CEO Shantanu Narayen standing next to a white counter.

ADOBE CEO SHANTANU NARAYEN, IMAGE SOURCE: ADOBE SYSTEMS.

Adobe Systems results: The raw numbers

Metric

Fiscal Q4 2018*

Fiscal Q4 2017

Growth (YOY)

Revenue

$2.46 billion

$2.01 billion

22.8%

GAAP net income

$678.2 million

$501.5 million

35.2%

GAAP earnings per share (diluted)

$1.37

$1.00

37%

DATA SOURCE: ADOBE SYSTEMS. * FOR THE PERIOD ENDED NOV. 30, 2018. YOY = YEAR OVER YEAR. 

What happened with Adobe Systems this quarter?

  • Adobe acquired B2B cloud marketing platform Marketo for $4.75 billion at the end of October.
  • Excluding the partial quarter's results from Marketo, revenue would have arrived at $2.44 billion, and GAAP earnings would have been $1.48 per share.
  • Adjusted for one-time items like acquisition costs and stock-based compensation, Adobe's (non-GAAP) net income was $906.2 million or $1.90 per share.
  • Each of these figures (excluding Marketo) exceeded Adobe's guidance provided in September, which called for revenue of $2.42 billion, GAAP earnings of $1.42 per share, and adjusted/non-GAAP earnings of $1.87 per share.
  • Digital media segment revenue climbed 23% year over year to $1.71 billion, above guidance for 22% growth. This includes Creative revenue of $1.45 billion, and Adobe Document Cloud revenue of $259 million.
  • Digital Experience segment revenue climbed 25% (or 22% excluding Marketo) to $690 million, above guidance for 20% growth.
  • Digital Media annualized recurring revenue (ARR) increased $430 million sequentially to $6.83 billion exiting the fiscal year. 
  • Roughly 90% of total revenue this quarter came from recurring sources.
  • Deferred revenue grew 22% year over year, to roughly $3 billion.
  • Generated operating cash flow of $1.1 billion, and repurchased 1.6 million shares for $397 million this quarter.
  • Sales from Magento Commerce, which Adobe acquired for $1.68 billion last quarter, exceeded Adobe's $30 million quarterly target.

What management had to say

Adobe CEO Shantanu Narayen called their performance this fiscal year "outstanding," adding: "In 2018 we made significant investments across our product portfolio, entered new markets, and made strategic acquisitions which we believe will fuel continued top and bottom-line performance."

CFO John Murphy said:

We finished the year strong with record results across the board, meeting or exceeding all of our annual and quarterly targets which did not include Marketo. We're excited to add Marketo and the expanded market opportunity it provides. We look forward to delivering strong revenue growth, accelerating earnings growth and healthy margin expansion during fiscal 2019.

Looking forward

Adobe also provided preliminary targets for fiscal year 2019. Those include total revenue climbing approximately 25% to roughly $11.15 billion -- well above the $10.8 billion expected by most people watching the stock -- assuming 20% Digital Media segment growth and a 34% increase from the Digital Experience business. On the bottom line, that should translate to GAAP earnings per share of $5.54 and adjusted (non-GAAP) earnings of $7.75 per share.

Put simply, this was another undeniably strong report from Adobe, signaling that the momentum of its burgeoning core business is still intact. Coupled with the promise of its acquisitions for effectively expanding its reach, I think long-term investors should be more than pleased.