Adobe Systems Incorporated(NASDAQ: ADBE)announced stronger-than-expected fiscal fourth-quarter 2016 results Thursday after the market closed, but shares of the creative software specialist are down slightly in after-hours trading as of this writing. Let's take a closer look at what drove Adobe's business over the past quarter, and what to expect going forward.
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Adobe's headquarters office. Image source: Adobe Systems Incorporated.
Adobe Systems results: The raw numbers
DATA SOURCE: ADOBE SYSTEMS INCORPORATED.
What happened with Adobe Systems this quarter?
- On an adjusted (non-GAAP) basis, which excludes one-time items like stock-based compensation and restructuring charges, net income per share grew 45.2% year over year, to $0.90.
- These results are well above Adobe's guidance, which called forfiscal fourth-quarter revenue of $1.55 billion to $1.60 billion, GAAP earnings per share of $0.60 to $0.66, and adjusted EPS of $0.83 to $0.89.
- Digital media segment revenue grew 23% year over year, to $1.08 billion, including 33% growth in Creative revenue, to $886 million.
- Digital media annualized recurring revenue (ARR) increased $316 million sequentially from last quarter, to $4.01 billion exiting the quarter, driven again by strength in the adoption of Creative Cloud and Document Cloud.
- Adobe Marketing Cloud revenue increased 32% year over year, to $465 million, a new company record. Notable new Marketing Cloud customers this quarter included Pandora, United Healthcare, UPS, Verizon, Lufthansa, and the U.S. Defense Information Systems Agency.
- Cash flow from operations was $696 million, up from $518 million last quarter, and setting another company record.
- Deferred revenue increased to a company high $2.01 billion, up from $1.80 billion last quarter.
- Repurchased 3.2 million shares for $331 million during the quarter bringing total repurchases in fiscal 2016 to 10.4 million shares for $1.01 billion.
- Last month, announced the impending acquisition of demand-side video ad platform TubeMogul for roughly $540 million net of cash and debt in a strategic move to strengthen Adobe's digital marketing and adtech leadership. The acquisition should close later this month.
What management had to say
"Adobe's market-leading digital media and digital marketing solutions are revolutionizing how customers design and deliver exceptional digital experiences," stated Adobe CEO Shantanu Narayen. "We enter 2017 with significant market momentum and strong technology tailwinds."
Adobe CFO Mark Garrett added: "Across our business, Adobe had a strong 2016 as we met or exceeded all of our key financial targets for the year. We are uniquely positioned as a cloud provider to deliver both top line and bottom line growth."
During the subsequent conference call, Garrett noted that, going forward, Adobe will provide quarterly estimates for its "most likely results rather than providing targeted ranges due to the increased predictability in our business." For that, investors can thank Adobe's transition away fromtraditional, license-based software and toward a cloud-based subscription model.
As such, for the current first quarter of fiscal 2017, Adobe anticipates $1.625 billion, GAAP earnings per share of $0.71, and adjusted earnings of $0.87 per share. By comparison -- and though we don't usually pay close attention to Wall Street's quarterly demands -- analysts' consensus estimates called for higher fiscal Q1 revenue of $1.65 billion, and lower adjusted earnings of $0.85 per share.
Next, Adobe expects full fiscal-year 2017 revenue of $6.95 billion, or 21% year-over-year growth factoring in an extra week in fiscal 2016. On the bottom line, that should translate to GAAP earnings per share of $2.85 and adjusted earnings per share of $3.75. However, this top-line guidance is below the $7.0 billion preliminary goal that management issued during their annual analyst meeting last month -- even as its bottom-line guidance remained intact.
According to Garrett during the call, the only difference between then and now is the fact the U.S. dollar has "strengthened considerably." And while Adobe's hedging programs should be able to mitigate its impact through the first half of the fiscal year, if they persist through the second half, it will hurt Adobe's ability to hit its early targets.
"Were it not for this currency fluctuation, we would be reaffirming all of the preliminary FY17 targets we provided on Nov. 2," Garrett insisted.
Finally, keep in mind that this guidance excludes Adobe's acquisition of TubeMogul, after the close of which Adobe will issue updated fiscal Q1 and full fiscal-year 2017 guidance.
In any case, apart from the currency-induced revenue-guidance reduction -- which is largely beyond Adobe's control and will inevitably pass -- this was another strong quarter as Adobe continued to build its cloud-based recurring revenue streams. And I think investors should be more than pleased with where Adobe stands today.
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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool recommends Adobe Systems, United Parcel Service, and Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.