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Adobe rises despite soft guidance

Key Points
  • Adobe's guidance came in below estimates, but the stock rose after hours anyway.
  • Some analysts have wondered if growth from the key Digital Media component is slowing.
Shantanu Narayen, CEO, Adobe
Mark Neuling | CNBC

Adobe shares rose more than 4% after hours on Tuesday after the company announced better-than-expected earnings for the second quarter of its 2019 fiscal year, which ended on May 31, and lighter-than-expected guidance.

Here are the key numbers:

  • Earnings: $1.83 per share, excluding certain items, vs. $1.78 per share as expected by analysts, according to Refinitiv.
  • Revenue: $2.74 billion, vs. $2.71 billion as expected by analysts, according to Refinitiv.

Adobe's revenue grew 25% year over year in the quarter, according to a statement.

Adobe's largest business segment, Digital Media, which includes the Creative Cloud and Document Cloud products, produced $1.89 billion in revenue, up 22% and above the $1.86 billion consensus estimate among analysts polled by FactSet. The Digital Experience segment, which contains Magento and Marketo, had revenue of $783.5 million, over the FactSet consensus estimate of $777.2 million. The Publishing segment contributed $70.6 million in revenue, above the $66.1 million estimate.

In the quarter Adobe reported $7.47 billion in annualized recurring revenue for its Digital Media business. That's above the FactSet consensus of $7.44 billion.

"With Digital Media ARR growth coming down from 30%-plus range in the last couple of quarters, investors have begun to question the long-term growth potential of the segment," Stifel analysts led by Tom Roderick wrote in a note distributed to clients on Sunday. "While the potential for seat conversion still remains internationally, we view existing account penetration and new use-cases as the primary seat and ARR growth drivers in the near-term."

The analysts suggested that additional price increases could bring about more growth.

In the fiscal second quarter Adobe picked up new business from Amazon, Adobe CEO Shantanu Narayen said on a Tuesday conference call with analysts.

Adobe said that for the fiscal third quarter, it expects $1.95 in earnings per share, excluding certain items, on $2.80 billion in revenue. Analysts polled by Refinitiv had been looking for $2.05 in earnings per share, excluding certain items, and $2.83 billion in revenue for that period.

"FY 2019 is expected to be another record year," Narayen said. "We expect the first-half momentum to continue in the second half."

Adobe's stock is up 22% so far in 2019.

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