Adobe (ADBE) – Earnings Review – March 23, 2024

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Adobe (ADBE) – Earnings Review – March 23, 2024

Adobe is a software giant that invented the .pdf file (co-founder John Warnock specifically). It provides programs to create and imagine, handle customer interactions and process documents. Revenue is split into two main buckets: Digital Media and Digital Experiences. Digital Media is made up of its “Creative Cloud” and “Document Cloud.” The Creative Cloud includes Photoshop and Illustrator. It’s what empowers creation, iteration and perfection of digital design. The Document Cloud, including the ubiquitous Adobe Acrobat, allows for secure PDF management and collaboration – among other things.

Finally, its Experience Cloud includes Adobe Analytics and other products like “Campaign.” Campaign is its (intuitively-named) marketing campaign tool. Experience Cloud covers end-to-end customer interactions with a real-time customer data platform (CDP) to ensure those interactions are optimized. It also publishes some greatly appreciated macro data on overall commerce spend.


  • Beat revenue estimates by 0.6% & beat guidance by 1.0%. Its 9.8% 3-year revenue CAGR compares to 13.9% as of last quarter & 14.8% 2 quarters ago.
  • Beat Digital Media net new annual recurring revenue (NNARR) guidance by 5.4%.
  • Beat digital media revenue guidance by 0.9%.
    • Creative Cloud revenue rose 11% Y/Y; Document Cloud revenue rose 18% Y/Y.
  • Beat digital experience revenue guidance by 0.8%.
  • Remaining performance obligations (RPO) rose 16% Y/Y to point to strong forward-looking demand.

“We are successfully monetizing our innovations with particular strength in Q1 in the enterprise segment across our Digital Media and Digital Experience businesses. This strength is reflected in our strong RPO growth of 16 percent year over year.” – CEO Shantanu Narayen

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases


Adobe beat $4.38 EPS estimates & its identical guidance by $0.10 each. EPS rose by 18% Y/Y. It sharply missed GAAP EPS estimates. GAAP net income & cash flow margins were hard hit by a $1 billion charge related to Figma M&A termination. There was less of a GAAP EBIT hit as the charge was largely incurred on the tax line. Excluding this, GAAP EPS was $3.55 vs. $3.37 expected. Operating cash flow (OCF) margin would have been 42.0%.

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases

Balance Sheet

  • $6.9B in cash & equivalents.
  • $3.6B in debt.
  • Share count fell slightly Y/Y. Authorized a sizable $25 billion boost to its buyback capacity (nearly 10% of the market cap).

Valuation & Guide

  • No full year guidance offered in the presser this quarter. It doesn’t always update annual guidance during the FY Q1 call, but it has in the past.
  • Q2 revenue guidance missed estimates by 0.6%.
  • Q2 GAAP & non-GAAP EPS guides roughly met estimates.

Call & Release Highlights

Digital Media – Document Cloud:

Acrobat Web Monthly Active Users (MAUs) continued to grow at a robust 70% Y/Y clip to cross 100 million this month. Slick Microsoft Edge and Google Chrome extensions are helping drive paid conversions, while its Acrobat Mobile product is helping too. The company is steadily making document collaboration and link sharing much more intuitive. This drove 300% Y/Y growth in PDFs sent using these tools.

Its newer GenAI “Acrobat AI Assistant” should be a compelling growth driver going forward. It conjoins Adobe’s Firefly (GenAI model series) with its massive data scale to unleash real-time document summaries, conversational querying and automated report generation. I’ve said it before and I will keep saying it: GenAI models are a dime a dozen without a data edge to train those models better than others can. GenAI favors incumbents with scale. That is Adobe. The AI assistant intuitively integrates with its Reader workflows to drive more use cases. This is currently in beta testing and will fully roll out this year. It will be monetized via “monthly add-on offerings.” 

Digital Media – Creative Cloud:

Adobe Express (used to be called Adobe Spark) makes content creation easier across channels. It has a deep content library for clients to use and detailed tools to customize its plethora of design templates. Adobe Express for Web also innately ties its Firefly AI models into workflows to automate tedious parts of content creation. The combination of Creative Cloud and Firefly freed IBM to shrink the creation of 1,000 marketing variations down from months to minutes with a 26x boost to engagement vs. benchmarks. Powerful stuff.

Customers are free to customize and build on top of these modes to leverage their own data and natively integrate these services into their own, internal workflows. Adobe Express for Mobile is now in beta testing to emulate these same perks on our phones. It sees this debut and the innovation engine driving accelerated adoption over the coming quarters. Its Firefly-powered GenAI Photoshop, Generative Fill and Generative Expand tools reached their highest engagement levels since the May 2023 launch, evidencing this traction.

  • Adobe and TikTok announced a new partnership to make content creation on that platform easier.
  • It’s testing AI-powered enhanced speech, GenAI music models, new editing tools and “auto-dubbing” models for video creation.
  • Won Nintendo, Accenture and Starbucks for this segment during the quarter.
  • GenAI advances drove a quarterly record for new Creative Cloud subscriptions.

“You can expect to see the product advances here drive ARR acceleration in the second half of the year.” – President of Digital Media David Wadhwani 

Digital Experiences – Adobe Experience Platform (AEP):

Adobe was named a leader in Digital Experiences by Garnter for the 7th straight year and by Forrester for the 4th straight year. Momentum for AEP and its native apps led to that bucket crossing $800 million in annual revenue. Budget scrutiny is leading to customers prioritizing marketing agility and best-possible customer interactions. Adobe’s end-to-end customer experience management (CXM) and real-time CDP allow it to provide clients with a detailed view of each individual customer across channels. This drives better segmentation, better targeting and better return on ad spend (ROAS). Tools like its Journey Optimizer, for example, help ensure client touchpoints are tasteful, timely and relevant. Its GenStudio app combines all aspects of content creation under one umbrella to expedite creation further. For this segment , GenAI is exponentially bolstering content variation potential, making every marketing campaign and customer interaction feel deeply personal – at an immense scale.

Later this month, Adobe will unveil new experience models, a new AEP assistant and more at its Adobe Summit.


This was a fine quarter. Nothing to be overly excited or concerned about for shareholders. I didn’t love the annual guidance removal, but it has done so before in the past while annual results shaped up to be fine. The first wave of GenAI monetization is happening at the chip, server and infrastructure equipment layers. The next wave will likely involve consumer apps stemming from this wave. The apps need this foundation to be laid before being brought to market. This is why SMCI and Nvidia are the clearest present examples of direct financial GenAI benefits. Those benefits, in my view, will greatly spread over time. Adobe is poised to capture its fair share. For now, we have steady double-digit top-and-bottom-line compounding and more wonderfully boring execution.

Disclaimer: Third party content is provided for informational purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy or sell any security. Third party content is not intended to serve as a recommendation to buy or sell any security and is not intended to serve as investment advice. Third party content creators are not affiliated with BBAE Holdings LLC, (“BBAE”) Redbridge Securities LLC (“Redbridge Securities”) or BBAE Advisors LLC (“BBAE Advisors”). All investments involve risk, including the possibility of total loss of principal. For additional important information, please click here.

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