Adobe’s Q1 2019 Earnings Reflect Growth Continuing Apace
Digital media is Adobe’s bread and butter with its leading products being Creative Cloud (e.g. Photoshop and Premiere) as well as its Document Cloud products (e.g. Acrobat). But the company also has a growing Digital Experience suite of products that serves many companies’ growing needs for marketing, analytics, and advertising.
Both of those businesses saw impressive growth in Adobe’s Q1 2019 earning, with Digital Media revenues growing 22% year over year and Digital Experience revenues growing 34% year over year.
Both sides of the business also saw sequential growth quarter over quarter, with the Digital Experience revenues again outpacing Digital Media, 8% growth compared to 4% growth.
While Adobe has few competitors who can offer the breadth and quality of products they can in Digital Media, the Digital Experience market is much more crowded so their growth is all the more impressive.
Adobe Revenue Breakdown by Business Segment
So Why is Adobe’s Stock Down After Hours?
Despite Adobe’s Q1 2019 earnings beating estimates and solid QoQ and YoY growth, the company’s stock price is down 2.5% after hours as of the time of publishing. The company has a history of beating revenue estimates that tend to lead to a run-up in the share price just before earnings and profit taking after the earnings are released.
This quarter, Adobe beat consensus revenue estimates of $2.55 billion by posting quarterly revenues of $2.6 billion, which is 25% higher than the first quarter last year. The company also came ahead of earnings per share (EPS) estimates of $1.62 by recording $1.71 EPS for the quarter.
The company has had quite a run in its share price since its recent low in late December of 2018, with its current price up nearly 30% since that point.
Adobe 1 Year Share Price
Adobe’s Revenues are Growing but Margins are Shrinking
The one warning sign ahead in the Adobe Q1 2019 earnings may be the shrinking margins. The company’s operating margin fell to 37.9% this quarter, down 2% over the previous quarter and down nearly 10% year over year. The bottom line didn’t fare any better with net margin of 32.5% this quarter, which is down 11.7% quarter over quarter and 12.6% over last year.
Part of the reason for the reduced margins, according to the company,lost deferred revenues from the acquisitions of Magento and Marketo last year. They expect margins to increase in the second half of this year.
Another impact of the acquisitions was the downturn in earnings per share (EPS) which came in at $1.71. While somewhat expected as EPS came in above estimates at $1.62, it does mark a turnaround of the steady growth it has delivered to shareholders.
As the year continues and impacts from the acquisitions taper off, look for Adobe to reverse these trends and continue the impressive growth seen on the top line.