Adobe is examining its pricing structure as the firm issues a cautious outlook for the coming quarter on the back of its Q1 numbers.
Overall Q1 revenue grew 9.1% year-on-year to $4.26 billion, with revenue in digital media up 9% to $3.11 billion and revenue from analytics and marketing up 13% to $1.06 billion. Net income was $1.26 billion. But the firm issued a cautious outlook for the coming quarter, with the situation in the Ukraine cited as a factor Sales to Russia and Belarus are on hold and that action is likely to result in a $75 million loss of business.
That said, CEO Shantanu Narayen was upbeat:
As it relates to what we have seen first in terms of the macro-economic situation, we actually continue to see strength. We were pleased with the strong Q1. Certainly, I think the last few weeks of the quarter, you saw some impact in Europe, specifically as it related to what happened in terms of the terrible situation in Ukraine. But I think we continue to see growth around the world.
Big picture, as we look at what’s happening in terms of customer adoption, what’s happening in terms of the excitement, there is no question that digital is a tailwind and will continue to be a tailwind. And our perspective is that what happened was the pandemic actually put a spotlight on the importance of everything we’re doing, whether it’s customer engagement, whether it’s content or document productivity.
As for the pricing review, David Wadhwani, Adobe’s President for Digital Media, explained this would have an impact in the second half of the year:
The last pricing update and adjustment we made was in 2017. Since then, we’ve added a lot to our existing offerings. We’ve added new applications. We’ve extended broadly across multiple services. We’ve doubled down on collaboration. We’ve added millions of stock assets and thousands of fonts. And we’ve also introduced new offerings. Obviously, Acrobat across web and mobile has been growing for the last few years…But also CCX (Creative Cloud Express) is now in market across web and mobile.
The early success we’re seeing with these new offerings across web and mobile and across Acrobat and CCX has really been the catalyst for these pricing adjustments that we’re looking at doing. They let us introduce the right value with the right onboarding experience and the right pricing to attract millions of new subscribers. And they provide us the opportunity to right-size the value where engagement and usage is highest in our core existing customer base.
Narayan insisted that the pricing overhaul was not down to competitive pressure from rivals:
We haven’t done a comprehensive look at [pricing] in multiple years. And directionally, I think the significant value that we have added has to do with people, whether you are in businesses or whether you are a user of the entire apps…directionally, we are just saying that is the area where we have to look at all of the increased value that we have. This is not driven in any way, shape or form by any competitive response. So, let me be categorical about that….with all of the new offerings that we have across web, across mobile, across the browsers, we just want to make sure that as we continue to expand the offerings, we are looking at the pricing in a good way. So, the value that we have added to, whether you are in teams with collaboration or whether you are businesses, continues to be a motivator for us to look at the prices as well on all the new apps that we have added.
Elsewhere, the pandemic-driven shift to online commerce is still providing positive benefits, said Anil Chakravarthy, Adobe’s President of Digital Experience:
Over the last two years, the digital economy has exploded as we have experienced a profound global shift in how we work, learn and play. Telehealth visits are now the norm rather than the exception. Customers and businesses are engaging and transacting digitally. Online shopping is now essential, and the US is on track to surpass $1 trillion in e-commerce sales this year, according to the Adobe Digital Economy Index…We continue to drive outstanding growth in our Experience Cloud business. The pandemic has caused brands around the world to realize the critical need for digital transformation. And we’re adding new logos while continuing to focus on driving significant value realization for our existing customers.
And with an eye to future growth opportunities, the metaverse got its obligatory mention, with Wadhwani citing customers putting building blocks in place:
We are seeing tremendous interest for Substance 3D and our new 3D Modeler beta as brands bring together the physical and digital worlds and begin their journeys to become metaverse-ready. Substance is already being adopted by global brands like Coca-Cola, NASCAR and NVIDIA for marketing and e-commerce.
A solid enough set of numbers, with the current state of the world leading to an inevitably pragmatic cautious outlook. How Adobe executes on the pricing review will be crucial for its prospects across the remainder of the year. There won’t be much impact in the current second quarter, but beyond that, let’s take another look at how it makes itself felt.