ADBE 4Q Results

Current Price:   $475                  Price Target: $520 

Position Size:    2.7%                  TTM Performance: +61% since inception (3/18)

 

Key Takeaways:

·        Adobe reported Q4 results and guidance ahead of consensus

·       Increased their addressable market estimates showing long runway for growth with <10% penetration.

·        CEO Shantanu Narayen said…”everywhere we look, whether it’s entertainment, education or the enterprise, content is fueling the digital economy.”

 

Additional Highlights:

·         ADBE reported 4Q total revenue growth of 14%. EPS was $2.81 vs. consensus $2.64.  

·        Some quotes form the call: 
   o “even regulated industries that have traditionally been slower to embrace digital have certainly picked up the pace this year. We have industries like healthcare that are transforming whether it’s through personalized medicine, telehealth, and new ways to engage patients.”
   o “Digital is breaking longstanding barriers to access to education which is something great because it’s making it more accessible.” 
·        Their annual holiday report (powered by Adobe Analytics) predicts that online holiday spending will reach a $189 billion, which represents 33% year-over-year growth.
·        They updated TAM expectations to $147B in ’23, a 25% increase from last year’s $118B in ’22. FY21 guidance of $15B implies only ~10% penetration. That includes ~$85B for Digital Experience and ~$62B for Digital Media (~$41B for creative, ~$21B for document). 

·         Digital Media segment ($2.5B, +20% YoY; ~71% of revenue):

o   Comprised of Creative cloud (84% of segment revenue, +19% YoY) and Document Cloud (16% of segment revenue, +22% YoY).

o   Segment Annualized Recurring Revenue (“ARR”) grew to $10.2B exiting the quarter. With Creative ARR of ~$8.7 billion, and Document Cloud ARR of $1.5 billion.

o   Creative Cloud is benefiting from “exploding” content creation and consumption across phones, tables and desktops. 

o   Increasing focus on new and emerging content creation categories including 3D, Virtual Reality and Augmented Reality.

o   “In the workplace of the future, creativity is how people will thrive, and frankly keep their jobs as AI takes over more and more of these productivity focused roles.”

o   Document Cloud, w/ PDF and “Adobe Sign,” is key in the remote work environment as the imperative to translate paper processes to digital accelerates across the globe. 

·         Digital Experience segment (revenue was $819m, +10% YoY; ~29% of revenue):

o   Digital Experience subscription revenue was +14% YoY. Segment revenue includes: subscription revenue, professional services revenue, and “other”, which includes perpetual, OEM and support revenue.

o   Upsell opportunity w/ existing customer base – 93% of top 100 customers have three or more Experience Cloud solutions w/ an average ARR of $8 million, 3X what it was in 2015.

o   Should improve in FY2021 w/ an SMB recovery

o   Closed acquisition of Workfront – a leading work management solution for marketers. Paid $1.5B (~7–8x sales), reasonable  vs. the SaaS-industry at close to 17x.

·        2021 Guidance: Total revenue ~$15.2B +19% YoY slightly ahead of consensus +$14.8b). EPS guide of $11.20 in line w/ street.

·        Adobe is a rare company w/ >90% recurring revenue, double digit top line growth and ~40% FCF margins. Additionally, the headwinds from Covid (like lower global ad spending and weak SMB demand) should abate, while the accelerated secular tailwinds around digital transformation will persist.

 

 

Sarah Kanwal

Equity Analyst, Director

 

Direct: 617.226.0022

Fax: 617.523.8118

 

Crestwood Advisors

One Liberty Square, Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

 

$ADBE.US

[tag ADBE]

[category earnings]