Adobe Sets Its Sights on a Bigger Target Market
Multimedia software specialist Adobe (NASDAQ: ADBE) reported fourth-quarter results on Thursday evening. The company beat Wall Street's consensus estimates across the board and issued solid guidance for the 2020 fiscal year.
Adobe's fourth quarter by the numbers
Metric |
Q4 2019 |
Q4 2018 |
Change |
Analyst consensus |
---|---|---|---|---|
Revenue |
$2.99 billion |
$2.46 billion |
22% |
$2.97 billion |
GAAP net income |
$852 million |
$678 million |
26% |
N/A |
Adjusted earnings per share (diluted) |
$2.29 |
$1.83 |
25% |
$2.26 |
Data source: Adobe.
What's next?
Looking ahead, Adobe issued first-quarter revenue guidance of approximately $3.04 billion, with an adjusted earnings target near $2.23 per share. The bottom-line guidance was in line with the current Street view, while the revenue target fell slightly below analysts' consensus estimates of $3.09 billion.
Whatever revenue weakness Adobe expects in the first quarter should be ameliorated by a stronger second half of fiscal year 2020, though. The company's full-year guidance calls for adjusted earnings near $9.75 per share on sales in the neighborhood of $3.15 billion. Both of these targets stand a rounding error away from matching Wall Street's projections.
Adobe wants to become a digital-marketing monster
Subscription-based sales accounted for 85% of the fourth-quarter revenues in Adobe's digital-experience division. As a reminder, that's Adobe's name for marketing and advertising tools, ranging from ad content and campaign-management systems to marketing-data analysis tools. Key fourth-quarter wins for this segment included large ad management contracts with Coca-Cola and 3M. These are titans of their respective industries, always on the hunt for more effective marketing tools on a global scale. Both 3M and Coke selected Adobe's products for that purpose.
In Adobe's largest segment, subscription revenues have produced nearly 100% of the incoming sales totals for several years. We're watching Adobe achieving a long-held goal whereby perpetual software licenses are essentially dead and are being replaced by recurring subscription fees and
The next overhaul to Adobe's business model lies in emphasizing the advertising-focused digital-experience business. Management sees an addressable yearly market worth $84 billion in this sector by 2022, compared to $31 billion for the creative-cloud workhorse and $13 billion for the document-management market.
Digital experience accounted for just 29% of Adobe's total sales in the fourth quarter. Expect that ratio to grow dramatically over the next few years.
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