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Stock Analyst Update

Adobe’s Digital Experience Drives Q3 Strength; FVE $610

The results support our view that Adobe will continue to dominate the creative segment. We are raising our fair value estimate.

Mentioned:

Wide-moat Adobe (ADBE) reported strong third-quarter results, including upside to guidance for revenue and non-GAAP EPS, and provided a better than expected quarterly outlook. We continue to see strength in all segments and geographies regarding quarterly results and are pleased to see continued strength in the digital experience, or DX, segment, which we believe is critical for growth longer-term. We think results continue to support our investment case that Adobe will continue to dominate the creative segment, and its well-rounded portfolio, including Magento and Marketo, position the firm as a digital marketing leader. Given results and guidance, we are raising our fair value estimate to $610 per share, from $569. Given the stock’s run year to date, we see shares as fairly valued.

Third-quarter revenue grew 22% year over year to $3.935 billion, compared with guidance of $3.880 billion and FactSet consensus of $3.882 billion. Digital media revenue grew 23% year over year while DX revenue accelerated to 26% year-over-year growth, with both being nicely ahead of our own expectations. Workfront continues to help drive larger deal sizes in the DX segment, while the midmarket has come back meaningfully. We remain impressed by Adobe’s ability to drive new users in digital media and we are relieved to see the DX resurgence, and we see no reason why these trends will not continue through 2022. Publishing and advertising revenue declined 22% year over year, which was a little shy of our forecast. Net new digital ARR was $455 million, versus guidance of $440 million, which was a small beat relative to the last couple years of outperformance, which was attributed to individual content creators. Document cloud remained strong in the quarter with continued momentum and increased usage for Adobe Sign and increased its revenue by 31% and its ARR by 33%, both year over year. Non-GAAP operating margin was 46.0%, compared with 43.5% a year ago and slightly ahead of our own expectations.

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Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.