Current Price: $563 Price Target: $610
Position Size: 2.7% TTM Performance: +82% since inception (3/18)
Key Takeaways:
- Q2 results well ahead of consensus; seeing very strong momentum in their business. Q2 revenue was $3.84B, +23% YoY.
- Long runway for growth – FY21 guidance of ~$15B implies only ~10% penetration on TAM expectations of $147B. That includes ~$85B for Digital Experience and ~$62B for Digital Media (~$41B for creative, ~$21B for document).
- Quote from the call, “on track for another record year with a strong first half already in the books. Few companies of our scale can
- boast 20% plus revenue growth, world-class operating margins and a recurring-revenue model built for long-term growth and profitability.”
- Digital Media segment ($2.79B, +25% YoY; ~71% of revenue): “unleashing creativity & accelerating document productivity”
- Comprised of Creative cloud (~60% of total revenue, +24% YoY) and Document Cloud (11% of total revenue, +30% YoY). Q2 total segment growth guided to +21%. Segment Annualized Recurring Revenue (“ARR”) grew to $11.21B.
- Creative Cloud is benefiting from “exploding” content creation and consumption across phones, tables and desktops. Seeing strong retention and renewal across all Creative products and customer segments.
- Growth drivers in creative cloud – continuing to drive innovation and extending products to new surfaces with Illustrator on iPad and Fresco on iPhone. And increasing focus on new and emerging content creation categories including 3D, Virtual Reality and Augmented Reality.
- Document Cloud – seeing increasing unit demand for Acrobat subscriptions across all geos; success in enterprise licensing, with broad seat expansion across enterprise accounts; continued strength with Adobe Sign, which grew ARR greater than 40% YoY.
- Digital Experience segment (revenue was $938m, +21% YoY; ~29% of revenue): “powering digital businesses”
- Digital Experience subscription revenue was $817, +25% YoY. Q2 guided to +18%. Segment revenue includes: subscription revenue, professional services revenue, and “other”, which includes perpetual, OEM and support revenue.
- Beneficiary of growing e-commerce penetration. Adobe offers a digital commerce platform (Magento) that competes w/ Shopify and BigCommerce which benefits from growing e-commerce spending. Recent strategic partnership with FedEx (Shoprunner) allows SMBs to offer expedited shipping capabilities as part of their commerce platform.
- 2021 Guidance re-affirmed: Expect revenue ~$15.45B +20% YoY basically in-line w/ consensus.
- 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) are abating, while the accelerated secular tailwinds around digital transformation will be a long-term benefit.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$ADBE.US
[tag ADBE]
[category earnings]