Adobe (NASDAQ:ADBE) Reports Q3 in Line With Expectations, Next Quarter Growth Looks Optimistic

Radek Strnad /
2021/09/21 4:12 pm EDT
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Creative software maker Adobe (NASDAQ:ADBE) reported results in line with analyst expectations in Q3 FY2021 quarter, with revenue up 22% year on year to $3.93 billion. Adobe made a GAAP profit of $1.21 billion, improving on its profit of $955 million, in the same quarter last year.

Is now the time to buy Adobe? Access our full analysis of the earnings results here, it's free.

Adobe (ADBE) Q3 FY2021 Highlights:

  • Revenue: $3.93 billion vs analyst estimates of $3.89 billion (0.99% beat)
  • EPS (non-GAAP): $3.11 vs analyst estimates of $3.02 (3.1% beat)
  • Revenue guidance for Q4 2021 is $4.07 billion at the midpoint, above analyst estimates of $4.04 billion
  • EPS (non-GAAP) guidance for Q4 2021 is $3.18 at the midpoint, above analyst estimates of $3.09
  • Free cash flow of $1.32 billion, down 30.2% from previous quarter
  • Gross Margin (GAAP): 88.1%, in line with previous quarter

“Adobe had another outstanding quarter as Creative Cloud, Document Cloud and Experience Cloud continue to transform storytelling, learning and conducting business in a digital-first world,” said Shantanu Narayen, president and CEO, Adobe.

One of the most well-known Silicon Valley software companies around, Adobe (ADBE) is a leading provider of software as service in the digital design and document management space.

As companies digitize business processes and internet users consume more digital content, the demand for digital experience tools is expected to remain strong.

Sales Growth

As you can see below, Adobe's revenue growth has been strong over the last year, growing from quarterly revenue of $3.22 billion, to $3.93 billion.

Adobe Total Revenue

This quarter, Adobe's quarterly revenue was once again up a very solid 22% year on year. On top of that, revenue increased $100 million quarter on quarter, a strong improvement on the $70 million decrease in Q2 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 14.6% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Adobe's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 88.1% in Q3.

Adobe Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.88 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like Adobe to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Adobe is doing a good job controlling costs and is not under a pressure from competition to lower prices.

Key Takeaways from Adobe's Q3 Results

With a market capitalization of $305 billion, more than $6.16 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed the positive outlook Adobe provided for the next quarter’s earnings. And we were also excited to see it that it outperformed analysts' earnings expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is down -3.25% on the results and currently trades at $624.95 per share.

Should you invest in Adobe right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.