Adobe (NASDAQ:ADBE) Posts Q2 Sales In Line With Estimates, Stock Jumps 12.6%

Radek Strnad /
2024/06/13 4:10 pm EDT

Creative software maker Adobe (NASDAQ:ADBE) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 10.2% year on year to $5.31 billion. On the other hand, the company expects next quarter's revenue to be around $5.36 billion, slightly below analysts' estimates. It made a non-GAAP profit of $4.48 per share, improving from its profit of $2.82 per share in the same quarter last year.

Is now the time to buy Adobe? Find out by accessing our full research report, it's free.

Adobe (ADBE) Q2 CY2024 Highlights:

  • Revenue: $5.31 billion vs analyst estimates of $5.29 billion (small beat)
  • EPS (non-GAAP): $4.48 vs analyst estimates of $4.39 (2% beat)
  • Revenue Guidance for Q3 CY2024 is $5.36 billion at the midpoint, below analyst estimates of $5.40 billion
  • EPS (non-GAAP) Guidance for Q3 CY2024 is $4.53 at the midpoint, above analyst estimates of $4.47
  • Gross Margin (GAAP): 88.7%, in line with the same quarter last year
  • Free Cash Flow of $1.90 billion, up 67% from the previous quarter
  • Net New Digital Media ARR: $487 million, above analyst estimates of $434 million
  • Billings: $4.89 billion at quarter end, up 3.5% year on year
  • Market Capitalization: $206 billion

“Adobe achieved record revenue of $5.31 billion driven by strong growth across Creative Cloud, Document Cloud and Experience Cloud,” said Shantanu Narayen, chair and CEO, Adobe.

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

Design Software

The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.

Sales Growth

As you can see below, Adobe's revenue growth has been unremarkable over the last three years, growing from $3.84 billion in Q2 2021 to $5.31 billion this quarter.

Adobe Total Revenue

This quarter, Adobe's quarterly revenue was once again up 10.2% year on year. Looking at the last two quarters, we can see that Adobe's revenue increased by $127 million in Q2 while it grew $134 million in Q1 CY2024. This steady quarter-on-quarter growth shows that the company can more or less maintain its growth trajectory.

Next quarter's guidance suggests that Adobe is expecting revenue to grow 9.5% year on year to $5.36 billion, in line with the 10.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.7% over the next 12 months before the earnings results announcement.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Adobe's free cash flow came in at $1.90 billion in Q2, down 5.9% year on year.

Adobe Free Cash Flow

Adobe has generated $6.37 billion in free cash flow over the last 12 months, an eye-popping 31.2% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Adobe's Q2 Results

It was good to see Adobe beat analysts' revenue, RPO, and EPS expectations this quarter. These beats were driven by massive outperformance in its net new Digital Media ARR, which clocked in at $487 million (vs estimates of $434 million). Thanks to the strong results, Adobe upgraded its full-year net new Digital Media ARR and EPS guidance, sending the stock price higher. We note its revenue guidance for next quarter missed Wall Street's estimates, but that didn't matter too much because the market cares most about its digital media segment. Overall, this was a great quarter. The stock is up 12.6% after reporting and currently trades at $516.49 per share.

So should you invest in Adobe right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.