Adobe delivers solid year end results - but confirms regulators probing $20 billion Figma deal

Derek du Preez Profile picture for user ddpreez December 19, 2022
Summary:
The market reacted favorably to Adobe’s Q4 and fiscal 2022 results, sending the company's shares upwards.

Shantanu Narayen CEO Adobe - screengrab from Adobe Summit 2021
(screengrab from Adobe Summit 2021)

Adobe has delivered a market pleasing set of Q4 and fiscal year 2022 results, where it saw its revenue grow by double digits across all of its business segments - including Digital Media, Creative, Document Cloud and Digital Experience. 

The numbers will be positive news for the company, given that some other technology vendors in the B2B sector have experienced a slowdown as a result of macroeconomic headwinds. However, leadership at Adobe did confirm that its planned $20 billion takeover of Figma, a collaborative design tool, is being investigated by competition authorities in the US and UK (with an expectation that the EU will investigate too). 

Commenting on the numbers, Adobe Chairman and CEO, Shantanu Narayen, said: 

Our strong performance in the uncertain macroeconomic environment underscores the resilience of our business and the mission-critical role of our products in a digital-first world. 

Our strategy to unleash creativity for all, accelerate document productivity and power digital businesses is driving momentum across every geography and customer segment, making us one of the most innovative, diversified, and profitable software companies in the world.

We continue to execute against our product roadmap, serve a vast customer universe from individuals to large enterprises and deliver strong top- and bottom-line growth. Adobe Creative Cloud, Document Cloud and Experience Cloud have become the foundation of Digital Experiences, starting with the first creative spark, to the creation and development of all content and media, to the personalized delivery across every channel.

The key numbers for Q4, are: 

  • Adobe achieved revenue of $4.53 billion in its fourth quarter of fiscal year 2022, which represents 10 percent year-over-year growth or 14 percent in constant currency.

  • GAAP operating income in the fourth quarter was $1.51 billion and non-GAAP operating income was $2.02 billion. GAAP net income was $1.18 billion and non-GAAP net income was $1.68 billion.

  • Remaining Performance Obligations (“RPO”) exiting the quarter were $15.19 billion

  • Digital Media segment revenue was $3.30 billion, which represents 10 percent year-over-year growth or 14 percent in constant currency. Creative revenue grew to $2.68 billion, representing 8 percent year-over-year growth or 13 percent in constant currency. Document Cloud revenue was $619 million, representing 16 percent year-over-year growth or 19 percent in constant currency. Digital Experience segment revenue was $1.15 billion, representing 14 percent year-over-year growth or 16 percent in constant currency. Digital Experience subscription revenue was $1.01 billion, representing 14 percent year-over-year growth or 16 percent in constant currency.

The full year 2022 numbers included: 

  • Adobe achieved revenue of $17.61 billion in fiscal year 2022, which represents 12 percent year-over-year growth or 15 percent adjusted year over-year growth.

  • GAAP operating income was $6.10 billion and non-GAAP operating income was $7.95 billion. GAAP net income was $4.76 billion and nonGAAP net income was $6.46 billion.

  • Adobe generated a record $7.84 billion in operating cash flows during the year. 

Figma deal

Adobe announced back in September that it had entered a definitive merger agreement to acquire Figma, a web-first collaborative design platform, for approximately $20 billion in cash and stock. Adobe said the deal would “usher in a new era of collaborative creativity”. 

David Wadhwani, President of Digital Media at Adobe, confirmed during a call with analysts that the deal is being investigated by competition regulators, but said that the company is confident that approval will be granted. He said: 

We’re excited about the pending Figma acquisition, which represents a tremendous opportunity to accelerate the future of creativity and productivity for millions of people.

Overall, the regulatory process is proceeding as expected. The transaction is being reviewed globally, including by the Department of Justice and the Competition and Markets Authority in the UK. We are currently engaged in the DOJ’s second request process. 

We expect that the transaction will also be reviewed in the EU. We continue to feel positive about the facts underlying the transaction and expect to receive approval to close the transaction in 2023.

Digital Experience

diginomica recently reported on Adobe’s Holiday Shopping Report, which analyzes trillions of data points in Adobe Analytics and found that Cyber Monday saw consumers spending $12.8 million every minute during the shopping bonanza. 

Speaking to the Christmas period coming up, Anil Chakravarthy, President of Digital Experience at Adobe, said: 

We predict spend will exceed $210 billion this holiday season. No company is better positioned than Adobe to capitalize on this large global opportunity.

And commenting on Adobe’s Digital Exeperience business segment, specifically, Chakravarthy provided some customer examples and said that the vendor’s mix of offering will speak well to buyers with current market challenges. He said: 

Adobe is differentiated in our ability to power the entire customer experience, from ideation to content creation to personalized delivery to monetization. Chipotle is a great example. They are using Creative Cloud to design content for web and mobile channels and Experience Cloud to highlight new product offerings based on consumer preferences and support a faster, easier and more customized online ordering process. 

In government, the State of Illinois is using Experience Cloud and Document Cloud to provide simpler and more equitable access to state services for over 12 million residents.

In my customer conversations, it’s clear that the current macroeconomic climate requires businesses to prioritize investments, and digital remains mission-critical to drive operational efficiency, improve customer engagement and maximize long-term value realization. 

We are driving a mix of diversified revenue streams through subscription and consulting services across new and existing customers, demonstrating the strength of our business.

My take

Given the mixed bag of results from B2B vendors this quarter, Adobe will be pleased with the market reaction to its numbers. Whilst there is still uncertainty around the Figma deal, all indications are that Adobe is heading into 2023 in a strong position. 

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