Adobe's (NASDAQ:ADBE) Q4 Earnings Results: Revenue In Line With Expectations But Stock Drops

Creative software maker Adobe (NASDAQ:ADBE) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 11.6% year on year to $5.05 billion. On the other hand, the company expects next quarter's revenue to be around $5.13 billion, slightly below analysts' estimates. It made a non-GAAP profit of $4.27 per share, improving from its profit of $3.60 per share in the same quarter last year.

Key Takeaways from Adobe's Q4 Results

It was good to see Adobe top analysts' revenue, adjusted operating income, and EPS expectations this quarter. These beats were driven by outperformance in its digital media and digital experience segments. We were also glad next quarter's earnings guidance exceeded Wall Street's estimates. On the other hand, this quarter's free cash flow missed expectations, and its full-year FY24 revenue guidance was below estimates, with management providing a weaker outlook for digital media net new ARR and digital experience subscription revenue. Overall, this was a mixed quarter for Adobe thanks to its underwhelming guidance. The company is down 7.1% on the results and currently trades at $579.95 per share.

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

“Adobe drove record revenue of $19.41 billion in FY23 and 17 percent year-over-year EPS growth, with strong momentum across Creative Cloud, Document Cloud and Experience Cloud,” said Shantanu Narayen, Chair and CEO of 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 two years, growing from $4.11 billion in Q4 FY2021 to $5.05 billion this quarter.

This quarter, Adobe's quarterly revenue was once again up 11.6% year on year. We can see that Adobe's revenue increased by $158 million quarter on quarter, which is a solid improvement from the $74 million increase in Q3 2023. Shareholders should applaud the acceleration of growth.

Next quarter, Adobe is guiding for a 9.2% year-on-year revenue decline to $5.13 billion, a further deceleration from the 9.2% year-on-year decrease it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $21.4 billion at the midpoint, growing 10.3% year on year compared to the 10.2% increase in FY2023.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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 $1.55 billion in Q4, down 30.6% year on year.

Adobe has generated $6.94 billion in free cash flow over the last 12 months, an eye-popping 35.8% 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.

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.

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