Adobe’s Outlook Doesn’t Disappoint

Image: Adobe’s shares are getting back on track after it issued a strong outlook for fiscal 2024.

By Brian Nelson, CFA

On June 13, Adobe (ADBE) reported better than expected second quarter results for fiscal 2024. Revenue grew 10% on a year-over-year basis (11% in constant currency), while diluted earnings per share came in at $4.48 on a non-GAAP basis. Non-GAAP operating income was $2.44 billion in the quarter, while the firm exited the period with $17.86 billion in remaining performance obligations. Management had the following to say about the quarter in the press release:

Adobe achieved record revenue of $5.31 billion driven by strong growth across Creative Cloud, Document Cloud and Experience Cloud. Our highly differentiated approach to AI and innovative product delivery are attracting an expanding universe of customers and providing more value to existing users…Adobe delivered outstanding Q2 results, positioning us to raise our annual targets. Our market-leading products, strong execution and world-class financial discipline position us well for the second half of 2024 and beyond.

Management ended May with $5.625 billion in short- and long-term debt, while cash and short-term investments totaled $8.065 billion, good for a nice net cash position. Cash flow from operations in the quarter was $1.94 billion, while free cash flow came in at ~$1.9 billion, as Adobe continues to benefit from its asset-light business model. The company bought back 4.6 million shares in the quarter.

Looking to all of fiscal 2024, management is targeting revenue in the range of $21.4-$21.5 billion and non-GAAP earnings per share in the range of $18.00-$18.20, the latter’s midpoint materially higher than the $18.01 the Street had been expecting at the time. We like Adobe’s asset-light business model, strong free cash flow generation, and better-than-expected outlook, but we’re already quite tech heavy in the newsletter portfolios. 

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