Adobe (ADBE +1.30%) recently announced another quarter of impressive sales growth as the software giant continues profiting from the shift toward cloud-based subscription product sales. Revenue outpaced management's forecast, although investors chose to focus more on the underwhelming guidance that the company issued for the end of its fiscal year.
In a conference call with Wall Street analysts, CEO Shantanu Narayen and his team explained the demand trends behind that soft outlook while stressing that the broader business is performing well as Adobe closes out fiscal 2019.
Let's look at three highlights from that presentation.
Image source: Getty Images.
1. Beating targets
"Q2 was a record quarter for Adobe, with strong revenue and continued growth across our entire business," Narayen said.
The $2.83 billion that it posted for the quarter edged past the company's mid-June prediction of $2.8 billion. Drilling deeper, its digital media segment expanded by 22%, compared with management's 20% prediction, and its digital experience division jumped 34%, meeting expectations.
"We drove strong revenue growth in both creative cloud and document cloud [products]," Narayen said as he highlighted popular products like Adobe Sign and Adobe Scan, both of which found plenty of traction with consumers and businesses over the last few months.
2. Execution stumbles were minor
"While we experienced some bookings delays in Q3, our robust product road map and customer pipeline positions us for multiple years of strong growth," Narayen said.
The earnings report contained a few weak spots, including some related to the newly launched Adobe Experience platform. Management noted lower order rates, which it described as "delays." These challenges mostly came from its consulting services segment, along with slightly weaker uptake for the Marketo marketing solution, whose growth came in below internal targets.
Adobe says it is addressing these challenges mainly by adding sales support, so investors should expect to hear demand improvements from the tech stock over the next few quarters.
3. Fast growth to close the year
"We remain excited about the opportunities in front of us and confident in our ability to drive strong top-line and bottom-line growth," Narayen said.
Management's prediction of $2.97 billion of sales in the current quarter amounts to 21% growth that nevertheless trails the high expectations of many investors who follow the stock. The prediction suggests that Adobe's expansion pace will moderate significantly in the digital experience segment as its sales initiatives take time to build up momentum.
Looking further out, the company says there's no shortage of exciting markets it can compete in as more creative output moves to digital platforms. As just one example, Adobe mentioned the customer experience management niche that should grow to a total addressable market of around $70 billion by 2021. The company already has a firm footing in this attractive niche.
Meanwhile, investors will be watching the next few quarterly reports for signs that the company continues to extend its lead across its large and growing product categories. Shareholders won't have to wait long to hear an update on management's short-term and long-term outlooks, though, since Narayen and his team will be back in front of investors in early November for the software giant's annual investor day.
