Adobe: No Signs of Slowing Down

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.