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Adobe results, outlook top Street views as 'mission critical' software tops spending priorities

By Wallace Witkowski

Shares gain 5% after hours as revenue rises year over year for 7th straight quarter to record $4.66 billion

Adobe Inc. shares rallied in the extended session Wednesday after the software company topped Wall Street expectations for the quarter and hiked its outlook, while anticipating its acquisition of interactive-design platform Figma will close by the end of the year.

Adobe (ADBE) shares rose 5% after hours, following a less than 0.1% gain to close the regular session at $333.61.

The company forecast fiscal second-quarter earnings of $3.75 to $3.80 a share, revenue of $4.75 billion to $4.78 billion, and new net digital media annualized recurring revenue, or ARR, of about $420 million, while the Street was looking for $3.76 a share on revenue of $4.75 billion and $388.7 million in ARR, according to FactSet. ARR is a metric often used by software-as-a-service, or SaaS, companies to show how much revenue the company can expect based on subscriptions.

Adobe also raised its forecast to earnings of $15.30 to $15.60 a share for the year, with net new digital media ARR of $1.7 billion. A quarter ago, Adobe forecast full-year earnings of $15.15 to $15.45 a share on revenue of $19.1 billion to $19.3 billion, and net new digital media ARR of $1.65 billion, which had been slightly lower than Street estimates at the time. Analysts currently estimate $15.29 a share and ARR of $1.66 billion.

Read: Adobe's stock drops as potential block on Figma deal raises concerns about growth

Adobe's confidence in its outlook comes from a theme common to software companies this past earnings season: As businesses are forced to do more with less, spending priorities have shifted to "mission critical" applications available from multi-product vendors.

"As the world goes digital and those investments are prioritized, not only do we help companies drive top-line growth, but we help them with the underlying productivity gains that go with that," Daniel Durn, Adobe's chief financial officer, told analysts on a conference call Wednesday. "It is why customers in this environment are prioritizing around things that we sell to enable their success."

Adobe reported fiscal first-quarter net income of $1.25 billion, or $2.71 a share, compared with $1.27 billion, or $2.66 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $3.80 a share. Revenue rose to a record $4.66 billion from $4.26 billion in the year-ago quarter for a seventh consecutive quarter of year-over-year gains.

Analysts had forecast $3.68 a share on revenue of $4.62 billion, based on Adobe's forecast of $3.65 to $3.70 a share on revenue of $4.6 billion to $4.64 billion. Digital media ARR came in at $410 million, while analysts had forecast $376.1 million.

Read: SVB fallout likely to affect some software sales in the short term, and how startups are financed long term

Meanwhile, Adobe said it still expects its $20 billion acquisition of privately held Figma to close by the end of the year despite a recent report the U.S. Department of Justice was planning to launch a lawsuit against the deal.

"We have completed the discovery phase of the U.S. DoJ second request and are prepared for next steps, whether that is an approval or a challenge," Shantanu Narayen, Adobe's chairman and chief executive, told analysts on the call. "Adobe remains confident in the facts underlying the case, and based on current process timing, we believe the transaction continues to be on track for a close by the end of 2023."

Over the past 12 months, Adobe shares are down 25%, compared with a 10% fall in the iShares Expanded Tech-Software Sector ETF (IGV), an 11% decline in the S&P 500 index , and a 15% drop in the tech-heavy Nasdaq Composite Index .

-Wallace Witkowski


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03-16-23 0827ET

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