How Much Will a Soaring US Dollar Impact Adobe Earnings?

Software solutions provider Adobe Systems report earnings for the third quarter Thursday Adobe $ADBE shares are down over 30% in 2022 in line with technology stocks underperforming and the general market malaise. The company issued guidance below estimates, prompting analysts to cut their ratings outlook. Foreign exchange impacted the outlook and with a soaring dollar since this effect overhangs. However solid expectations for Digital Media and [Digital Experience remains.

Adobe Changing The World

Adobe Inc NASDAQ: ADBE Reported Earnings After Close Thursday

$3.35 EPS Forecast And $4.44 Billion Forecast in Revenue. 

Earnings Preview

  • Consensus EPS Estimates: $3.35
  • Consensus Revenue Estimates: $4.44B
  • Earnings Insight: Adobe exceeded both EPS and revenue estimates in 8 straight quarters. However, Guidance has been the biggest impact on stock prices.

Q2 Earnings Recap

Adobe in the second quarter of 2022 saw revenue reach a record $4.39 billion, which beat analyst expectations by $39.15 million, up by 15% year-over-year. This was driven by strong growth in the Digital Media Segment (Creative and Document Cloud), which increased to $3.2 billion, up 15% year over year. Document Cloud Revenue grew 27% to $595 million. Net New Digital Media Annualized Recurring Revenue (“ARR”) was $464 million, with total Digital media ARR $12.95 billion.

Lowered Guidance

Management cut guidance for the third quarter of 2022. ADBE is forecasting Revenue of $17.65 billion, which is less than analyst consensus estimates of $17.85 billion. ADBE lowered adjusted EPS $13.50, which is less than analyst consensus estimates of $13.66. This lower guidance is driven by higher tax rates for stock-based compensation. Other headwinds include the company’s exit from Russia and an $175 million in FX losses across Q3 and Q4.

ADBE is a leader in the digital transformation happening across nearly every industry with a level of consistency in a very resilient business model. The largest impact has been inflation and a surging US dollar for its global customers.

ADBE largest segment is Digital Media (~73% of total revs). The biggest component of Digital Media is ADBE’s Creative business (~83% of Digital Media revs), made up of its cloud-based content creating products such as Photoshop, Illustrator, and Lightroom. These products are, for the most part, industry standards in video and photo editing that assist developers in creating augmented reality (AR) and 3D models which affectively keep Adobe moving forward. ADBE which derives ~92% of its revenue from subscription products.

Photoshop

Document Cloud, the other component of ADBE’s Digital Media segment, continues to grow as many small and medium-sized businesses (SMBs) have continued to turn to digital signature platforms. They have taken business away from DocuSign who reported last week. DocuSign reported billings of $647.7 million, up 9% from a year ago. DocuSign’s is in transition following the resignation of longtime CEO Dan Springer in June. Springer led the company through its initial public offering. $DOCO reported that its subscription revenue rose by 23% in the quarter, to $605.2 million. It will be interesting how this influences Adobe.

The company believes the Document Cloud industry will be worth ~$21 billion in 2023 and grow to $32 billion by 2024. Adobe believes this growth will be driven by the surge in knowledge/hybrid workers and business data standardization.

Adobe’s Digital Experience segment focuses on delivering data insights for businesses and are subscription-based, providing a steady revenue stream. Key end customers include CVS Pharmacy (CVS), Facebook (FB), and Ford (F). The Digital Experience offerings complement its Digital Media segment as these solutions allow content creators and companies’ marketing departments to edit, publish, and drive insights into different advertisements and forms of media.

About Adobe

Adobe Inc. (NASDAQ: ADBE) was founded in 1982 by John Warnock and Charles Geschke after leaving the legendary Xerox PARC, the company which pioneered the modern personal computer and many related technologies. Since then, Adobe has become an industry leader across creative software (Photoshop), marketing automation (Marketo), and even documents with its PDF file format.

Adobe completed its acquisition of Frame.io in October 2021, which finally solves the problem of collaborating on video edit projects with teams and clients.

Source: Adobe Inc, AlphaStreet

From The TradersCommunity Research Desk