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No Surprises In Adobe's (NASDAQ:ADBE) Q4 Sales Numbers But Next Quarter Guidance Disappoints


Adam Hejl /
2021/12/16 8:22 am EST
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Creative software maker Adobe (NASDAQ:ADBE) reported results in line with analyst expectations in Q4 FY2021 quarter, with revenue up 20% year on year to $4.11 billion. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $4.23 billion at the midpoint, or 2.43% below analyst estimates. Adobe made a GAAP profit of $1.23 billion, down on its profit of $2.25 billion, 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) Q4 FY2021 Highlights:

  • Revenue: $4.11 billion vs analyst estimates of $4.09 billion (small beat)
  • EPS (non-GAAP): $3.20 vs analyst estimates of $3.20
  • Revenue guidance for Q1 2022 is $4.23 billion at the midpoint, below analyst estimates of $4.34 billion
  • EPS (non-GAAP) guidance for Q1 2022 is $3.35 at the midpoint, below analyst estimates of $3.39
  • Management's revenue guidance for upcoming financial year 2022 is $17.9 billion at the midpoint, predicting 13.3% growth (vs 19% in FY2021)
  • Free cash flow of $1.96 billion, up 49% from previous quarter
  • Gross Margin (GAAP): 87.6%, in line with same quarter last year

“Adobe’s record performance in Q4 resulted in fiscal 2021 revenue exceeding $15 billion,” said Shantanu Narayen, chairman 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.

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 $3.42 billion, to $4.11 billion.

Adobe Total Revenue

This quarter, Adobe's quarterly revenue was once again up a very solid 20% year on year. On top of that, revenue increased $175 million quarter on quarter, a very strong improvement on the $100 million increase in Q3 2021, which shows re-acceleration of growth, and is great to see.

Analysts covering the company are expecting the revenues to grow 14.7% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Adobe. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

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, licenses, technical support and other necessary running expenses was at 87.6% in Q4.

Adobe Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.87 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 pressure from competition to lower prices.

Key Takeaways from Adobe's Q4 Results

Sporting a market capitalization of $292 billion, more than $5.79 billion in cash and with positive free cash flow over the last twelve months, we're confident that Adobe has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that Adobe's revenue guidance for the full year miss analyst's expectations. and the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Adobe. The company is down 6.71% on the results and currently trades at $588.24 per share as the market assesses the updates to the leadership team.

Adobe may have had a tough quarter, but does that actually create an opportunity to invest 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.