Adobe Systems (Still) Has Its Head in the Clouds

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Adobe Systems Incorporated (NASDAQ: ADBE) announced another stronger-than-expected quarter on Thursday after the market closed, setting fresh company records for both revenue and earnings on the continued outperformance of its cloud-based creative software solutions. Shares were up modestly in after-hours trading.

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Let's take a closer look at what Adobe achieved over the past few months, as well as the company's new expectations for the coming year.

Adobe Systems results: The raw numbers

Metric

Fiscal Q4 2017*

Fiscal Q4 2016

Year-Over-Year Growth

Revenue

$2.01 billion

$1.61 billion

24.8%

GAAP net income

$501.5 million

$399.6 million

25.5%

GAAP earnings per share (diluted)

$1.00

$0.80

25%

What happened with Adobe Systems this quarter?

  • On an adjusted (non-GAAP) basis, which adds perspective by excluding items like stock-based compensation, net income per diluted share increased 40%, to $1.26.
  • These results compare favorably to Adobe's latest quarterly guidance, which the company reaffirmed during an investor meeting in mid-October, calling for revenue of $1.95 billion, GAAP earnings of $0.86 per share, and adjusted earnings of $1.14 per share.
  • Digital-media segment revenue grew 29% year over year -- above guidance for 25% growth -- to $1.39 billion.
  • Adobe Experience Cloud revenue climbed 18% year over year -- also above guidance for 17% growth -- to $550 million.
  • Digital media annualized recurring revenue (ARR) climbed $359 million sequentially from last quarter, to end the fiscal year at $5.23 billion.
  • The company generated cash flow from operations of $833 million.
  • Adobe Systems repurchased roughly 1.9 million shares for $297 million during the quarter, bringing full fiscal-year repurchases to 8.2 million shares, for $1.1 billion. This leaves $1.9 billion remaining under Adobe's current repurchase authorization.

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What management had to say

"Our strong business momentum is driven by the market-leading solutions we provide to empower people to create and businesses to digitally transform," stated Adobe CEO Shantanu Narayen.

"Adobe achieved record annual and quarterly revenue, and the leverage in our business model once again drove record profit and earnings," added Adobe CFO Mark Garrett. "We are raising our fiscal 2018 revenue target and remain bullish about delivering strong top line and bottom line growth."

Looking forward

More specifically, Adobe is now targeting full fiscal-year 2018 revenue of $8.725 billion, good for year-over-year growth of 19.5% and a slight increase from guidance provided in October for an even $8.7 billion. That figure still assumes digital-media segment revenue growth of 23%, Adobe Experience Cloud subscription revenue growth of 20%, and Adobe Experience Cloud total revenue growth of 15%. On the bottom line, Adobe reiterated its previous guidance for full fiscal-year 2018 GAAP earnings per share of $4.40 and adjusted earnings of $5.50 per share.

In the meantime, for the current fiscal first quarter of 2018, Adobe expects revenue to be roughly $2.04 billion -- which is roughly in line with consensus expectations -- assuming digital-media segment growth of 25% and Experience Cloud growth of 15%. That should translate to fiscal Q1 GAAP earnings of $1.15 per share and adjusted earnings of $1.27 per share -- the latter of which is slightly ahead of investors' expectations for current-quarter adjusted earnings of $1.24 per share.

All things considered -- and even if its extended streak of relative outperformance didn't drop any jaws on Wall Street -- this was an exceptional showing from Adobe as it continues to scale its cloud-based products, and as it demonstrates enviable operating leverage and cash-flow generation.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Adobe Systems. The Motley Fool has a disclosure policy.