When Adobe (ADBE, Financial) reported its fourth quarter earnings on last Thursday, December 11, it did not surprise analysts who were expecting the company to do extraordinarily well in the quarter. In fact, the company performed beyond all expectations and send the stock up immediately after the release by moving up almost 10% in the stock market. Let’s have a look at the key highlights of the quarter that was shared by the top bosses that indicates that Adobe remains a reliable investment.
The quick quarter recap
In the earnings announcement, the company reported faster-than expected adoption of subscription licenses for its Creative Cloud business and showed phenomenal growth in its marketing cloud business. The company reported over 3.454 million paid subscribers for the Creative Cloud services which was a sizable increase of 644,000 over the past quarter. This helped in generating over $1.5 billion in annualized recurring revenue in the quarter.
Growth was also seen in the marketing cloud initiatives during the quarter as revenue grew by 4.5% year over year to $330 million. Despite growth witnessed in the cloud mode of business, the LiveCycle software revenues declined by 9% during the quarter.
The company’s earnings on a non-GAAP basis stood at $0.36 a share and $0.14 a share on GAAP basis and the revenue grew by 3% year on year to $1.07 billion, which was at the high end of the targeted range of $1 billion to $1.075 billion.
During the earnings announcement, the management said that they had entered into a definitive agreement to acquire Fotolia, a leading marketplace for stock content. As Fotolia would be integrated into its Creative Cloud business, it means that this acquisition could mark improvement in the annual subscription count in this business line which would add to Adobe’s profits.
Let’s have a look at how the two major segments performed to understand why Adobe remains a reliable buy for interested investors.
Strong creative cloud subscription buoys revenue
This division makes over 66% of Adobe’s overall value and the best part of the quarter was that 96% of the subscribers have signed for annual contracts in the fourth quarter thus making Adobe’s position firmer in the creative cloud space.
This growth in licensing continues to stem from individual, team and enterprise term licensing agreements which usually have tenure of three years. This is also a clear indication that the creative cloud will drive revenue in the foreseeable future as well as adoption across all offering remains strong.
In the quarter, the revenue of the division climbed over 20% sequentially to $1.676 billion in ARR, and subscriber base also churned out to become 3.454 million. This means that on a weekly basis, the company was able to add on 49,538 subscribers in the final quarter of the fiscal year. It’s being expected that the subscription rate would remain similar in the coming fiscal year and the company hopes to add at least 2.5 million subscribers in 2015 to take the total count to over 6 million by end of the next fiscal year.
Marketing platform serves as a sure boost to the order count
Its cloud marketing division is the second largest division that makes for around 14% of its value. Adobe has successfully build a comprehensive digital marketing platform in the past few years and this platform helps in addressing most of the needs of digital marketing. Built in 2009 after the acquisition of Ominiture, this platform has witnessed strong growth in the past few quarters.
Even in this quarter, the marketing cloud division exhibited around 118% year-over-year growth to $330 million. Furthermore, the company achieved record bookings in this line of business and it was well ahead of its 30% annual growth target, primarily due to the big deals won in the fourth quarter. These deals were signed with companies which include Ford (F, Financial), MasterCard (MA, Financial), Morgan Stanley (MS, Financial) to name a few. It’s expected that as big data analytics, social media and cloud computing gain traction across industries, this division will show phenomenal growth in revenue thus driving the bottom line of the company in the positive direction in the future quarters as well.
Adobe expects the new bookings to grow at a 30% CAGR, and revenue to grow at a 25% in 2015.
Foraying ahead
The tech company knows how to use its strengths and how to build opportunities to grow its lines of business and thus Adobe is seeing rosy days currently in the industry. As the company’s strategies remain solid, it’s slated to see much better days in the coming days, so investors can take the stock as a strong buy as Adobe has been performing extraordinarily and higher expectations are set for the coming fiscal year by the company management.
