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Adobe Continues Its Streak of Setting Revenue Records Despite the Pandemic

By Danny Vena – Sep 17, 2020 at 10:15AM

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The creative software specialist once again generated double-digit percentage top-line growth.

Adobe (ADBE -0.44%) delivered earnings results after the market closed Tuesday that were impressive on a number of fronts. Not only did the company exceed expectations, but it kept alive its five-year streak of year-over-year quarterly increases in revenue. And it produced the best fiscal third-quarter results in the company's history, among other things generating record operating cash flow of $1.44 billion.

Adobe Headquarters building with the logo at the top of the building.

Image source: Adobe.

Deja vu -- all over again

For its fiscal third quarter, which ended Aug. 28, Adobe reported record revenue of $3.23 billion, up 14%. That topped both management's forecast of $3.15 billion and analysts' consensus estimate of $3.16 billion. The bottom line was also better than expected, with non-GAAP diluted earnings per share of $2.57, an increase of 25% year over year, compared to expectations for $2.41.

All of Adobe's major operating segments contributed to the broad-based sales growth. Digital media revenue grew to $2.34 billion, up 19%, while the digital experience business generated subscription revenue of $729 million, up 7%. Both segments well outpaced Adobe's guidance, which called for growth of 16% and flat sales, respectively.

The creative software specialist demonstrated its strength in spite of the challenges engendered by the pandemic. Revenue from the creative business grew 19% to a record $1.96 billion, while the Document Cloud grew by 22% to a record $375 million. The digital experience segment overall generated $838 million, up 2% year over year. 

Annualized recurring revenue (ARR) -- which forms the foundation for any subscription-based business -- continues to climb. Digital media ARR grew 24% year over year to $9.63 billion, and net new ARR for the segment hit $458 million during the quarter. Creative ARR grew by $360 million, to $8.29 billion, and Document Cloud ARR added $98 million, growing to $1.34 billion. All told, a whopping 93% of the company's revenue during the quarter came from subscriptions.

Adobe also has an impressive book of business currently under contract, as its remaining performance obligation -- which consists of future revenue that is under contract but has not yet been recognized -- swelled 18% year over year to $10.34 billion.

"Adobe delivered the best Q3 in our history in a challenging macroeconomic environment, demonstrating the global demand for our innovative solutions," said President and CEO Shantanu Narayen. "We are confident that our leadership in the creative, document and customer experience management categories will drive continued momentum in 2020 and beyond." 

Cloud computing icons over a blurred background.

Image source: Getty Images.

More of the same

For its fiscal fourth quarter, Adobe is forecasting revenue of $3.35 billion, an increase of 12%, which would be the software-as-a-service provider's slowest pace of growth in more than five years. It is expecting better growth from the digital media segment -- about 18%. The company is also guiding for adjusted EPS to rise by 15% to $2.64. 

The outlook was mostly in line with analysts' consensus estimates, which are calling for revenue of $3.36 billion and EPS of $2.64. 

Adobe stock was up slightly in after-hours trading, even after surging 54% so far this year.

Danny Vena owns shares of Adobe Systems. The Motley Fool owns shares of and recommends Adobe Systems. The Motley Fool has a disclosure policy.

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