$ADBE 4Q'22 Update
While the days of 20%+ topline growth is clearly behind us, Adobe remains the juggernaut in creativity software industry.
Digital Media, Digital Experience, and overall revenue in 4Q'22 increased +13%, +16%, and +14% YoY respectively (all FXN).
While the days of 20%+ topline growth is clearly behind us, Adobe remains the juggernaut in creativity software industry.
Digital Media, Digital Experience, and overall revenue in 4Q'22 increased +13%, +16%, and +14% YoY respectively (all FXN).
More encouragingly, Creative Cloud just had the best net new ARR quarter.
While we typically see an untick in net new ARR in Document Cloud in Q4, there wasn't any this time. Why?
"some portion of the Acrobat business is also represented in the creative business. So the Acrobat growth number is probably a bit understated in this point."
"some portion of the Acrobat business is also represented in the creative business. So the Acrobat growth number is probably a bit understated in this point."
Not sure I've ever seen any company reporting 96% gross margin before, but Digital Media's gross margin remains steady at ~95-96% despite the FX headwind.
Digital Experience's GM increased by 55 bps YoY to 66.0%, and overall company's GM was 87.4% last quarter
Digital Experience's GM increased by 55 bps YoY to 66.0%, and overall company's GM was 87.4% last quarter
With such sky-high gross margin, it is not a surprise that a scaled company such as Adobe is ~33-35% GAAP EBIT margin business.
Thanks to net working capital benefit and SBC, FCF is consistently materially higher than operating margin.
Thanks to net working capital benefit and SBC, FCF is consistently materially higher than operating margin.
There's not much sign of SBC leverage, but as I explained before, you shouldn't expect SBC as % of revenue to go down anytime soon.
mbi-deepdives.com
mbi-deepdives.com
Adobe has ramped up its buyback activity this year, declining ~3% shares outstanding in 2022.
~89% of last year's FCF was used to repurchase its shares.
~89% of last year's FCF was used to repurchase its shares.
On the product side, Adobe Express, which is a direct competitor of Canva, remains a major focus for the company:
Regulatory review on Figma acquisition is going "as expected".
While RPO may seem to be rapidly decelerating, there is ~3% FX headwind. Even FXN, there is definitely signs of pressure on growth.
Adobe, however, is seeing retention to be better than pre-pandemic:
Adobe re-iterated its guidance for 2023 shared on Analyst Day in late October. If they can indeed grow revenue by 13% in 2023 which increasingly seems to be consensus recession year, it will be quite the feat compared to last recessions.
In 2001 and 2002, Adobe's topline went down by 3% and 5% respectively. In 2009, revenue went down by 18%!
Switching to subscription business model has indeed worked wonder for Adobe.
My Deep Dive on Adobe (August, 2022): mbi-deepdives.com
Switching to subscription business model has indeed worked wonder for Adobe.
My Deep Dive on Adobe (August, 2022): mbi-deepdives.com
Website link of this thread: mbi-deepdives.com
$SHW Deep Dive will be published on December 20th.
$SHW Deep Dive will be published on December 20th.
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