It was an interesting set of results for Adobe this week. On the one hand it delivered record-breaking Q2 numbers, beating analyst expectations, but on the other it saw its share price fall as the market reacted negatively to its weaker than expected outlook.
However, CEO Shantanu Narayen said during an investors call this week that the “importance of digital remains undiminished”, despite the obvious macroeconomic uncertainties that face the global economy. Narayen said:
When you talk about a recession, when you look at the three things that Adobe does, which is focus on content, focus on automation, focus on customer engagement, I just don't look at any of those and feel like the secular trend for that will change.
There may be some change in the rhythm of that quarter-over-quarter, but the fundamental shift of what we are doing, this real time CDP [customer data platform] engagement, is going to be the only thing that differentiates a business from another business.
So, we’ll navigate it. We have an incredibly experienced management team and we're planning for the upside right now, which is all of our growth initiatives. We are clearly not going to be in denial. But right now, it feels like a very strong time for Adobe to continue to execute against the things that we have on our plate.
Turning to the numbers, for Q2 2022 Adobe reported:
Record revenue of $4.39 billion in its second quarter of fiscal year 2022, which represents 14 percent year-over-year growth or 15 percent in constant currency.
Diluted earnings per share was $2.49 on a GAAP basis and $3.35 on a non-GAAP basis.
GAAP net income was $1.18 billion, and non-GAAP net income was $1.59 billion.
Remaining Performance Obligations (“RPO”) exiting the quarter were $13.82 billion.
Breaking the numbers down by Adobe’s various business segments, the company reported:
Digital Media revenue was $3.20 billion, which represents 15 percent year-over-year growth or 16 percent in constant currency.
Creative revenue grew to $2.61 billion, representing 12 percent year-over-year growth or 14 percent in constant currency.
Document Cloud revenue was $595 million, representing 27 percent year-over-year growth or 28 percent in constant currency.
Net New Digital Media Annualized Recurring Revenue (“ARR”) was $464 million, exiting the quarter with Digital Media ARR of $12.95 billion.
Creative ARR grew to $10.82 billion and Document Cloud ARR grew to $2.13 billion.
Digital Experience segment revenue was $1.10 billion, representing 17 percent year-over-year growth or 18 percent in constant currency
Digital Experience subscription revenue was $961 million, representing 18 percent year-over-year growth
Commenting on the Digital Experience numbers specifically, which is core to Adobe’s enterprise business, Narayen said:
The digital economy runs on Adobe’s tools and platforms. Customers from individuals and small businesses to the largest enterprises are using our products to unleash their creativity, accelerate document productivity, and deliver personalized customer experiences.
Digital experiences from the apps on our devices, to the digital documents we consume, edit and sign, to the personalized online shopping experiences, is made possible by Adobe. Our mission to enable the world's digital experiences has never been more relevant, and we remain focused on executing our long term growth initiatives.
Digital is a priority
As mentioned, Adobe’s forecast for the full year is slightly weaker than what analysts had predicted, which forced the company’s share price down in after hours trading. However, CEO Narayen is keen to focus on the big picture - that buyers are unwavered on their commitment to digital, despite any future macroeconomic uncertainties. He said:
In the conversations that we're having, I would first say that the interest level in executives all around the world is very high. I would say right now, the focus is also a lot on execution. So a lot of the investments that people have made in digital, they recognize how critical the imperative is to engage with customers digitally. So we're actually pleased that both Adobe, as well as the entire systems integrator and partner network, are finding that there's a lot of demand for implementation on Adobe products.
I think the other part of the conversation that you all have with enterprise CEOs right now is they all recognize it's an uncertain time. But despite that uncertain macroeconomic environment, the thing that all of them recognize is that digital is a priority. And they really want to continue to have conversations with us as to how they can do digital. The importance of digital remains undiminished.
Our philosophy right now, given all of the myriad opportunities that we have, is we're planning for the upside.
I’ve said it before and I’ll say it again, although the current economic climate will require a more pragmatic approach to forecasts, it’s also been proven time and time again that when a crisis hits, investments in technology typically increase. We saw it with the 2008 financial crisis and buyers’ adoption of cloud and we saw it with the COVID-19 pandemic and the investment in digital engagement. Yes, optimism will be subdued, but buyers will recognize that the best way to navigate through the storm is a smarter use of digital tools.