Multimedia software specialist Adobe (NASDAQ:ADBE) reported fourth-quarter results on Thursday evening. The company beat Wall Street's consensus estimates across the board and issued solid guidance for the 2020 fiscal year.

Adobe's fourth quarter by the numbers

Metric

Q4 2019

Q4 2018

Change

Analyst consensus

Revenue

$2.99 billion

$2.46 billion

22%

$2.97 billion

GAAP net income

$852 million

$678 million

26%

N/A

Adjusted earnings per share (diluted)

$2.29

$1.83

25%

$2.26

Data source: Adobe. GAAP = generally accepted accounting principles.

What's next?

Looking ahead, Adobe issued first-quarter revenue guidance of approximately $3.04 billion, with an adjusted earnings target near $2.23 per share. The bottom-line guidance was in line with the current Street view, while the revenue target fell slightly below analysts' consensus estimates of $3.09 billion.

Whatever revenue weakness Adobe expects in the first quarter should be ameliorated by a stronger second half of fiscal year 2020, though. The company's full-year guidance calls for adjusted earnings near $9.75 per share on sales in the neighborhood of $3.15 billion. Both of these targets stand a rounding error away from matching Wall Street's projections.

A businessman holds up a large sheet of paper with a mindmap centered on Digital Marketing. Other key words on this sheet include SEO, Website, and AdWords.

Image source: Getty Images.

Adobe wants to become a digital-marketing monster

Subscription-based sales accounted for 85% of the fourth-quarter revenues in Adobe's digital-experience division. As a reminder, that's Adobe's name for marketing and advertising tools, ranging from ad content and campaign-management systems to marketing-data analysis tools. Key fourth-quarter wins for this segment included large ad management contracts with Coca-Cola and 3M. These are titans of their respective industries, always on the hunt for more effective marketing tools on a global scale. Both 3M and Coke selected Adobe's products for that purpose.

In Adobe's largest segment, subscription revenues have produced nearly 100% of the incoming sales totals for several years. We're watching Adobe achieving a long-held goal whereby perpetual software licenses are essentially dead and are being replaced by recurring subscription fees and cloud-based tools. Adobe was one of the first software companies to turn in this direction six years ago, but this model has become a nearly universal standard these days.

The next overhaul to Adobe's business model lies in emphasizing the advertising-focused digital-experience business. Management sees an addressable yearly market worth $84 billion in this sector by 2022, compared to $31 billion for the creative-cloud workhorse and $13 billion for the document-management market.

Digital experience accounted for just 29% of Adobe's total sales in the fourth quarter. Expect that ratio to grow dramatically over the next few years.