Market Overview

Adobe Continues Its Upward March With A New Record

Adobe Continues Its Upward March With A New Record

After the markets closed on Tuesday, Adobe Inc (NASDAQ: ADBE) posted even better than expected financial results for its third quarter of the 2020 fiscal year that ended on August 28th, 2020. Adobe delivered the best Q3 in its history in a beyond-challenging macroeconomic environment as global demand for its innovative solutions was only strengthened by the pandemic.

Q3 Earnings

To begin, Adobe recorded $3.23 billion in revenue. What's more impressive than the figure itself is that it implies a 14 percent year-over-year growth. The Digital Media segment revenue was $2.34 billion which is a 19 percent growth on the same basis. Creative revenue grew to $1.96 billion, at the same growth rate. Document Cloud revenue was $375 million, topping the list with a 22 percent growth on the same basis.

Digital Experience segment revenue amounted to $838 million as digital experience subscription revenue increased 7 percent year-over-year to $729 million. When advertising cloud revenue is excluded, the segment grew 14 percent year-over-year. GAAP operating income in the third quarter was $1.07 billion, and non-GAAP operating income was $1.40 billion. GAAP net income amounted to $955 million. Cash flows from operations were also at a record level of $1.44 billion.

Competitive Landscape

Adobe does what investors want to see: it is making money efficiently. Its gross margin is 83.4%, mostly due to the nature of its offerings. But even when we compare its results with its competitors, Adobe is still on top of the game as it has undoubtedly a great business., inc. (NYSE: CRM) reported a gross margin of 68% but it now has Microsoft Corporation (NASDAQ: MSFT) to compete with. Having one of the biggest tech players as your direct competitor does not make things any easier.

Meanwhile, DocuSign Inc (NASDAQ: DOCU) reported a gross margin of 73.8% but it still saw prices jumping all over the place. Despite strong earnings, its stock price lost about 20% in three days during a tumultuous week. Revenue increased 45% from a year earlier, and billings were up 61% in the same period, so it all indicates that markets simply needed to correct its price. Sentiment is what counts and Adobe could also be influenced by it at some point. It's a great profitable company with a strong stock, but despite all of the amazing metrics, no upward rise can continue indefinitely. For now, Adobe has no true competitor and that is its greatest strength.

Adobe Stock Is A Star

Adobe shares have risen 51% since the beginning of this unprecedented year. During the last trading minutes on Tuesday, its shares hit $497.67 which is a rise of 76% in the last 12 months. Its price has been steadily increasing for several years now. Its creative portfolio that includes Photoshop, Illustrator, and Acrobat certainly justify its success. Not only are they great products, but they have become integral to businesses and professionals as 2020 made us jump several years ahead into a digital future.

Momentum Is Expected To Go Beyond 2020

Shantanu Narayen, president and CEO of Adobe is confident that the company's leadership in the creative, document and customer experience management segments will drive continued momentum even beyond 2020. Adobe is successfully riding the tech wave which has brought immense gains during the pandemic, but more importantly, it made the world reliant on its products. The global economy plunged, but the world didn't entirely stop during the worst pandemic in modern history only thanks to technology. If it wasn't for companies such as Adobe, things would have been even worse.

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Photo by Mikaela Shannon on Unsplash


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