Adobe: No Signs of Slowing Down
The Magento acquisition will bolster the firm's already strong standing in digital marketing while unlocking new opportunities.
Adobe (ADBE) reported second-quarter results that were slightly ahead of our expectations, as the firm continues to drive new user growth in its Digital Media business while Experience Cloud adoption remains healthy. Management indicated the firm has received regulatory clearance on its pending Magento acquisition, a deal that should close next week. We continue to believe this acquisition will bolster the firm’s already-strong standing in digital marketing while unlocking new opportunities in both business-to-business and business-to-consumer commerce. We are maintaining our wide moat rating and $235 fair value estimate, and shares appear fairly valued following these results.
Second-quarter revenue grew 24% versus the prior-year period to $2.2 billion, roughly 2% ahead of our internal estimate. Subscription revenue growth remains robust, rising 30% year over year and approaching an $8 billion annualized run rate. Digital Media remains the firm’s key growth driver, rising 28% year over year. Management noted the firm has seen very little price elasticity following the Creative Cloud price hikes that were rolled out in the quarter, while international market adoption remains healthy. The Document Cloud business continues to pick up steam as the subscription revenue base increases, with revenue rising 22% versus the prior-year period to $243 million. We were also heartened to see an acceleration in Experience Cloud subscription revenue, which rose roughly 25% in the quarter to $469 million.
Management’s guidance continues to move in the direction of our prior estimates, including the firm’s updated non-GAAP tax rate guidance of 14%, down from the firm’s previously announced guidance of 18%, which we had suspected was high given Adobe’s mix of international earnings. We continue to model a long-term non-GAAP tax rate of 13%, as we expect international growth opportunities to lower the firm’s tax basis even further.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Rodney Nelson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.