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  • Earnings
  • saas

Adobe shares jump on Q4 earnings beat

Adobe ended the fiscal year strong, nailing revenue predictions and exceeding EPS estimates. Its Digital Media segment contributed most to overall revenue, bringing in $12.8bn, up 11% on the year. The company’s proposed purchase of Figma for $20bn would be one of the largest acquisitions of a private software developer.

- Adobe beat EPS estimates, generating record operating cash flows during Q4 and the fiscal year.

- Figma takeover deal is under scrutiny but is on track to close in 2023.

- Adobe is the top holding in the iShares Expanded Tech-Software Sector ETF.

Adobe Inc. [ADBE] ended its fourth quarter (Q4) stronger than expected, with its shares jumping 6% in after-hours trading on 15 December following the earnings announcement. The following day, Adobe closed up up 3% from the prior day’s close.

The company beat Q4 EPS estimates, coming in at an adjusted $3.60 per share, compared with the expected $3.50 per share, according to analysts polled by Refinitiv.

The company recorded $4.53bn in revenue for the quarter ended 2 December, a 10% year-over-year increase, in line with the analyst consensus. Revenue for the fiscal year 2022 came to $17.61bn, up 12% year-over-year.

Adobe’s results bucked the trend in an overall grim session for the stock market, with the S&P 500 Index [SPX] falling 1.1% and the Dow Jones Industrial Average [DJI] down 0.85%.

Adobe hasn’t been immune to volatility on markets this year, with its share price sliding 39.8% in the year to 22 December. In the last month, however, it has climbed back up by 6.2%.

Record cash flows and Figma acquisition on track

Adobe reported a record $2.33bn in cash flow from operations, and the repurchasing of approximately five million shares during the quarter. 

For the full year, Adobe’s Digital Media segment, responsible for the largest chunk of its revenue, up 11% year-over-year to $12.8bn. Its creative revenue, coming in second, was up 10% year-over-year at $10.5bn. The fastest growing revenue drivers were its Document Cloud segment, up 21% year-over-year at $2.4bn, and its Digital Experience segment, up 14% year-over-year at $4.4bn.

As a possible driver of future growth, Adobe is set to purchase Figma for $20bn in what would be one of the largest acquisitions of a private software developer. The deal was announced last September and is currently under scrutiny by UK, US and EU authorities.

"We continue to feel positive about the facts underlying the transaction and expect to receive approval to close the transaction in 2023," Adobe's president of digital media David Wadhwani said on the Q4 earnings call. The US Department of Justice and the UK Competition and Markets Authority are currently reviewing the deal, he added.

Fears of economic downturn

“We delivered record operating cash flows with a focus on profitability,” Adobe’s CEO Shantanu Narayen said of the earnings, noting that the company is being cautious and will not be immune to a declining economy.

In its Q4 earnings report, Adobe exceeded analyst expectations with its guidance for the next quarter. The company said it is expecting $3.65 to $3.70 adjusted EPS, which would mean as much as 1.6% above analyst expectations according to Refinitiv polls. Revenue guidance between $4.6bn and $4.64bn would match analyst forecasts if it comes to the top of that range.

As of 22 December, Adobe is trading 13.5% below the median 12-month price target among 30 analysts polled by Refinitiv. Out of 35 analysts polled, eight held a ‘buy’ rating, 11 said it would ‘outperform’ and 16 recommend to ‘hold’.

Funds in focus: iShares Expanded Tech-Software Sector ETF

Adobe is the top holding in the iShares Expanded Tech-Software Sector ETF [IGV] at 8.79% as of 21 December, followed by Microsoft [MSFT]. The fund focuses primarily on SaaS providers and is down 1.8% in the last month and down 35% year-to-date.

The iShares Expanded Tech Sector ETF [IGM] includes a 1.66% holding of Adobe and offers broader exposure to a mix of technology companies across different categories, including hardware, software, SaaS, internet marketing, interactive media and related providers. The fund was down 3.3% in the last month and down 34.5% year-to-date.

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