No news rarely feels so good.
‘s fiscal fourth-quarter results late Thursday contained few surprises. Revenue rose 10% year over year to $4.5 billion, in line with analysts’ forecasts, while adjusted operating income came in at $2 billion, slightly ahead of expectations. The company also reaffirmed that it expects revenue of about $19.2 billion at the midpoint for the fiscal year ending in November 2023.
The latter is particularly important because it shows Adobe’s business hasn’t weakened since mid-October, when it first issued that projection during a meeting with analysts. That hasn’t been the case for many other companies that sell cloud-based software services to businesses.
The weakening global economy finally has corporate tech managers watching their bills—and pulling back in some areas.
and
posted disappointing growth levels for their cloud operations for the September quarter. And
—the only pure-play cloud software company larger than Adobe in terms of annual revenue—notably broke with past practice during its third-quarter report last month by declining to give a projection for its own coming fiscal year, citing “a very unpredictable macro environment.”
Adobe’s share price rose 3% Friday. But the company is hardly immune to the macro environment. Remaining performance obligations, a measure of contracted revenue not yet recognized, rose less than 8% sequentially during the November quarter compared with a rise of nearly 11% in the same period last year. And the previously-stated revenue projection for the full 2023 fiscal year reflects growth of just 9%—Adobe’s slowest annual growth in nearly a decade.
Even that humble view faces some risk if the economy takes a further turn for the worse. Analyst
Brent Thill
of Jefferies noted that more layoffs could affect Adobe’s Digital Media business—its largest segment—as much of the revenue there comes from seat-based subscriptions and licenses to popular software tools such as Photoshop, Illustrator and Lightroom. Adobe projected Digital Media revenue will grow 8% year over year in the fiscal first quarter, which would be the segment’s slowest growth since 2014.
The biggest question mark, though, remains Adobe’s pending acquisition of Figma. The $20 billion deal took investors by surprise when the company announced it with its third-quarter results in September. The stock has clawed back some of the significant ground it lost on that news, but it has still lagged behind the S&P 500 Software & Services Group since then given concerns that the deal was a sign of weakness for Adobe’s own software design tool business, where Figma is a fast-growing competitor.
The deal is more than four times as large as Adobe’s previously record acquisition of Marketo in 2018, and the company didn’t even face competition from a rival bidder, according to background information in a filing on the deal last month.
Regulators are thus taking a hard look at the Figma takeout, though Adobe said Thursday it remains confident that it can close the transaction in 2023. But many analysts remain skeptical; 53% currently rate Adobe shares as a buy compared with 80% before the deal’s announcement, according to
“We struggle to see how Adobe can make the deal work,” wrote
Tyler Radke
of
in a note Thursday before the most recent results.
Mark Moerdler
of Bernstein was more positive, calling Figma “less of a direct competitor of Adobe and more of a multifaceted opportunity.”
Either way, much rides on Adobe getting the Figma transaction done and proving such a huge gamble can pay off. “The one thing we feel strongly about is that Adobe needs the deal to go through to help the long-term growth prospects in the digital media business,” wrote Sterling Auty of MoffettNathanson.
Failure is not an option.
Write to Dan Gallagher at dan.gallagher@wsj.com
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