Adobe Beats Estimates on Creative Cloud Growth

Adobe beat analysts' estimates for quarterly profit and revenue on Tuesday, driven by growth in its digital media business that houses its flagship product Creative Cloud, sending its shares up 4.6% after market.

Adobe is sharpening its focus on the fast-growing cloud business, a fiercely competitive market dominated by Microsoft, Oracle, and Salesforce.com.

In doing so, Adobe, known for its image-editing software Photoshop, partnered with Microsoft in March to bolster its sales and marketing software capabilities.

Salesforce and Microsoft also posted better-than-expected quarterly results on the back of growth in their cloud businesses.

Adobe's shift to a cloud-based subscription has brought a more predictable revenue stream for the company, by selling its software through web-based subscriptions and not through the sale of packaged-licensed software.

On Tuesday, Adobe's executives expressed confidence in the company's ability to raise prices annually for its subscription-based services, while driving volume growth by attracting new users.

"We're able to do that through the various new products that are attracting folks to our platform... And then as they get comfortable with those, they end up to upsell them into full suite products for multiple applications," Chief Financial Officer John Murphy on post-earnings call.

Subscription revenue during the second quarter jumped 27.7% to $2.46 billion and product revenue rose 1.2% to $152.8 million.

Revenue from Adobe's digital media segment jumped 22% to $1.89 billion, above estimates of $1.86 billion, according to IBES data from Refinitiv.

Revenue from its Experience Cloud business, which provides services including analytics, advertising and marketing, rose 34% to $784 million, above analysts' estimate of $774.9 million. The growth was helped by the acquisitions of Magento and Marketo, Chief Executive Officer Shantanu Narayen said on the call.

However, the company expects to report revenue of about $2.80 billion in the third quarter, below analysts' estimates of $2.83 billion. It estimates a 20% revenue rise in its digital media unit in the current quarter.

The San Jose, California-based company's revenue jumped 25% to $2.74 billion in the quarter ended May 31, beating estimates of $2.70 billion.

Excluding items, Adobe earned $1.83 per share, above the average analyst estimate of $1.78.

© Thomson Reuters 2019