For the fourth quarter of the fiscal year, Adobe’s revenue rose 14 percent year-on-year, 1.7 percent exceeding analysts’ consensus and 2 percent exceeding management’s initial estimate. Adjusted diluted EPS, which was 6.5 percent greater than market-wide forecasts, rose by 22.7 percent.
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The company’s digital multimedia solutions’ key business segment, which accounts for 73 percent of revenues, increased revenue by 20 percent year-on-year due to sustaining steady demand while maintaining a focus on online engagement, developing online content, and expanding solution functionality. The number of supported platforms was increased in response to the demand for the organization of employees’ work in remote mode, and the collaboration functionality was extended. The dynamics of the market were positively influenced by the 21.2 percent growth in document cloud solutions revenues. Increased demand for PDF and Adobe Sign applications enabled this, even as a result of increased seamless connectivity to different platforms.
Marketing and analytics (Experience Cloud) revenue rose 10% year on year and 7.5% quarter on quarter. Client profiles with online data updates, as well as new analytical capabilities focused on artificial intelligence and machine learning, were added to the functionality of the segment’s solutions. In addition, the Customer Journey Analytics tool was launched by Adobe, which integrates data coming from different channels.
The non-GAAP operating margin improved by 2.3% to 44.9%, backed by a rise in gross profit from 84.8% to 87.5% on the back of an increase in the size of operations, as well as a decline in operating costs for travel and offline activities.
According to Adobe management’s prediction, its revenue will rise by 15 percent (at the current level) for the next year and by 21.3 percent in the first quarter, thanks to the impact of the Workfront acquisition (+$25 million) and the fact that the reporting duration will be longer by one week than the first quarter of last year (+$230 million). It is estimated that adjusted diluted EPS will increase by 22.5 percent.
Adobe’s CEO listed the expansion of its presence in the production of graphical user interfaces, as well as in the 3D, VR and AR sub-segments, among the strategic areas of growth. Furthermore, it will deepen engagement with user groups and support for its own platform-the Behance developer ecosystem-. The creation of solutions for creating digital documents based on open source code, so that third-party developers can build applications, would be another growth point.
We positively view Adobe’s quarterly results. It shows a steady trend in revenue in 2020 and, according to preliminary projections, the growth rate will be sustained in 2021. Thanks to the offer of premium products and the best features in the market, we believe the company will remain a pioneer in its business segments. We are growing the target price to $484.8 and “buy” is the recommendation.
