Last week, Adobe reported record results for their first quarter of fiscal year 2023. For the quarter ended March 3, 2023, Adobe had revenue of $4.66 billion, representing 9% growth year-over-year. Subscription revenue was $4.37 billion, product revenue was $120 million, and services and other revenue was $162 million. Subscription revenue makes up the largest percentage at 93.8%.

“Digital is reshaping how we connect and engage with the world around us. Our performance demonstrates the critical role that Adobe products are playing in fueling the global digital economy, empowering everyone, everywhere to imagine, create and bring any digital experience to life,” said Adobe CEO and chairman Shantanu Narayen on a March 15, 2023 earnings call.

“We are executing against our strategy to unleash creativity for all, accelerate document productivity and power digital businesses, delivering on our innovative product roadmap and engaging a growing universe of customers – from individuals to small businesses to the largest enterprises,” Narayen added.

The CEO also talked about the pending acquisition of Figma, a collaborative, web-based product design platform, that is one of Adobe’s largest competitors. The deal was first announced last fall and is worth approximately $20 billion in a half-cash/half-stock deal. They are in the process of regulatory approvals.

“We have completed the discovery phase of the U.S. DOJ second request and are prepared for next steps, whether that is an approval or a challenge,” Narayen said. “Adobe remains confident in the facts underlying the case, and based on current process timing, we believe the transaction continues to be on track for a close by the end of 2023.”

Quarterly highlights

Adobe reported the following highlights for the quarter:

• GAAP operating income was $1.59 billion.
• GAAP net income was $1.25 billion, or $2.71 diluted earnings per share.
• Cash flow from operations was $1.69 billion.
• Adobe repurchased approximately 5 million shares during the quarter.
• The company finished the quarter with cash and cash equivalents of $4.07 billion, just under half of total current assets.

Business segment revenue:

• Digital Media segment revenue was $3.4 billion, a 9% increase year-over-year. Net new Digital Media ARR was $410 million. At the end of the quarter, Digital Media ARR was $13.67 billion.
• Creative revenue was $2.76 billion, an 8% increase year-over-year. Creative ARR was $11.28 billion. Customers include Accenture, BBC, Disney, Infosys and Nintendo.
• Document Cloud revenue was $634 million, a 13% increase year-over-year. Document Cloud ARR was $2.39 billion. Customers include Bank of Montreal, HP, JP Morgan Chase, Samsun and Verizon.
• Digital Experience segment revenue was $1.18 billion, an 11% increase year-over-year. Digital Experience subscription revenue was $1.04 billion, a 12% increase year-over-year. Adobe said the Experience Cloud has high retention rates and there is a strong demand for these services. Customers include Costco, IBM, MetLife, Paramount and Pfizer.

Revised annual financial targets

As a result of their strong results, the company is raising its targets for Digital Media net new annual revenue rate (ARR) and earnings per share (EPS) for the year. The company estimates Digital Media net new ARR to be approximately $1.7 billion, and GAAP earnings per share to be between $10.85 and $11.15. The targets are based on an estimated 456 million shares at the end of fiscal year 2023.

Second quarter outlook

For the company’s second fiscal quarter of 2023, Adobe shared the following guidance:

• Total revenue between $4.75 billion and $4.78 billion
• Digital Media net new ARR of approximately $420 million
• Digital Media segment revenue between $3.45 billion and $3.47 billion
• Digital Experience segment revenue between $1.21 billion and $1.23 billion
• Digital Experience subscription revenue between $1.06 billion and $1.08 billion
• GAAP earnings per share between $2.65 and $2.70

Investors are impressed

The day before Adobe released its Q1 FY2023 financials, Adobe stock was valued at $333.33 per share. As of 7:59 pm Eastern yesterday, Adobe stock had risen in value to $362.88.

Insider Take

Adobe was among the big tech companies who gravitated to the subscription model early. In 2012, Adobe began the transition from one-time purchases to a software as a service (SaaS) model. It wasn’t a popular idea among customers who preferred to make “one and done” purchases, but the idea eventually took hold, and subscription revenue now represents the majority of Adobe’s revenue. It may have seemed like a risky move at the time, but Adobe has proven itself.

For more on how Adobe made the subscription model work for them, check out these premium articles:

The Secret Behind Adobe’s Recurring Revenue Success

How Adobe Changed Their Approach to Recurring Payments

Adobe’s Top 10 Payment Success Strategies – Part 1

Adobe’s Top 10 Payment Success Strategies – Part 2