Adobe 3Q19 (Aug-19Q) Results Important Disclosures Can Be Found in Appendix
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This report is for Michael Tromp. Unauthorized redistribution strictly prohibited and considered a violation of our intellectual property. September 18, 2019 Adobe 3Q19 (Aug-19Q) Results Important disclosures can be found in Appendix STRONG REVENUE IN 3Q DRIVEN BY NEW CUSTOMER GROWTH IN CREATIVE + DOCUMENT; BOOKING DELAYS IN Q AS AEP ADOPTION BELOW EXPECTATIONS (CLEVELAND RESEARCH) Key Points 1. 3Q revenue exceeded targets; Document Cloud accelerated, Creative and Experience constant Q/Q growth 2. Bookings underperformed in Q – Marketo (in mid-mkt) and Analytics Cloud (integration to AEP) saw delays 3. Mobile on-ramp, int’l expansion, and single apps driving new user growth for Digital Media (Creative / Document) 4. Digital Experience business driven by strong performance from AEM and Magento + strong end market 5. AEP adoption below expectations (some pilots in market currently); company expects to meet previous FY targets 6. For 4Q , company focusing more on mid-market, driving AEP, and unifying GTM strategy with Magento / Marketo RESULTS AND UPDATED OUTLOOK (MARKETO AND MAGENTO INCLUDED) Aug-19Q RESULTS Revenue of $2.83B (+24% Y/Y) vs. prior Q +25% Y/Y Creative Cloud revs of $1.65B (+22% Y/Y vs. prior Q +22%) Document Cloud revs of $308m (+24% Y/Y vs. prior Q +22%) Digital Exper. revs of $821M (+34% Y/Y vs. prior Q +34% Y/Y and forecast of 34% Y/Y) Net New Digital Media ARR $386M (vs. prior Q $406M) Creative Cloud ARR of $6.87B (+21% Y/Y); Document Cloud ARR of $993M (+33% Y/Y) GEO SUMMARY North America revenue of $1.64B +26% Y/Y (prior Q +28%) EMEA revenue of $755M +17% Y/Y (prior Q +19%) APAC revenue of $411M +28% Y/Y (prior Q +23%) Nov-19Q OUTLOOK Digital Media revenue of $2.06B (+20% Y/Y) vs. prior Q of +22% Y/Y Digital Experience revenue of $848M (+23% Y/Y) vs. prior Q of +34% FY19 OUTLOOK Maintained total revenue guidance of ~11.15B (+23% Y/Y) vs. FY18 +24% Y/Y Maintained Digital Media revenue guidance of +20% Y/Y (implied $7.59B) vs. FY18 of 26% Experience Cloud subscription bookings >20% Y/Y (prior guidance of 25%) Highlights from Conference Call Revenue in 3Q of $2.83B (+24% Y/Y) beat expectations o Creative Cloud growth driven continued momentum in mobile and new customer acquisition o Document Cloud driven by shift to subscription and conversion of free users to paid o Consistent Q/Q Digital Experience growth driven by AEM, Campaign, and Magento o Emerging markets performed favorably in 3Q (+40% Y/Y) - China called out as being strong o 92% of revenue from recurring sources in 3Q – continues to increase as % of mix Company noted some delay in bookings in Digital Experience segment in 3Q o Subscription bookings for Marketo in mid-market below expectations . Function of GTM strategy and focusing more on enterprise o Also saw delays in Analytics Cloud bookings, which conversely impacted consulting services bookings ARI TERJANIAN COOPER REA [email protected] [email protected] (216) 649-7275 (216) 649-7187 . Analytics Cloud being integrated in to AEP; less than expected AEP adoption causing some delays This report is for Michael Tromp. Unauthorized redistribution strictly prohibited and considered a violation of our intellectual property. o Also impacted revenue associated with AEP; below expectations o Highlighted that macro had no impact on booking delays – more about sales execution Creative Cloud driven by upsells, new customer acquisition, and mobile o Mobile has been a health on-ramp for subscriptions o Success in enterprise offerings including new logos and seat expansions o Adobe Lightroom strong on mobile – 130% Y/Y monthly active user growth o New Adobe IDs from mobile apps grew 40% Y/Y o Strong single-app performance from Adobe Premiere Pro and Adobe Illustrator o Adobe Stock rev grew 30% Y/Y vs. prior Q of 25% Y/Y – seeing good traction internationally o Adobe Fresco new product announced in 3Q – will be available on Apple iPads in the fall o China seeing really good growth for Creative Cloud Teams Document Cloud accelerated Q/Q from continued shift to subscription, mobile momentum, and Adobe Sign o Record for net new ARR in 3Q ($72m) driven by subscription bringing total Document ARR to $993m o Enterprise adoption continues to be strong . Key 3Q wins – Deutsche Bank, Saudi Aramco, Dell, and U.S. Department of Veteran Affairs o Customers expecting to be able to handle paper-based business processes over mobile . More than 2.5 billion PDFs were opened on Adobe Reader mobile in 3Q . Adobe scan had 35m installs in 3Q (+30% Y/Y) – top downloaded scanning app on iOS and Android o Adobe Sign continues to gain traction growing +25% Y/Y and also introduced Adobe Sign for SMB in 3Q o New cloud offering that allows for instant access to PDF creation and compression on any browser Digital Experience solution seen as market leader in CX – penetrating the entire C-suite o Key wins in 3Q included Delta Airlines, T-Mobile, Capital One, and Best Western o AEM performed favorably in 3Q – Assets and AEM Forms called out . Highlighted moving AEM to full SaaS, headless commerce, and DAM as focus areas for AEM o Magento adoption strong (bookings +40% Y/Y) with noted success of bringing Magento up market o Completed integration of Marketo and Campaign for full marketing orchestration stack for B2B and B2C o See the CX market as having a TAM of more than $70B by 2021 AEP is an exciting opportunity but company may have been aggressive with initial expectations for adoption o Company highlighted customers excited about AEP and already some initial pilot deployments in market o Admitted actual adoption not happening as quickly as originally expected o New Analytics Cloud upgrade available through AEP – customer adoption has been good, but shift to AEP is causing some of those booking delays o AEP more focused on enterprise than mid-market Marketo strong in enterprise, under-performed in mid-market o Adobe unified sales organization for mid-market with Magento and Marketo o Shifting focus for Marketo to really focus on mid-market where the big opportunity is o Mid-market traction can help margin expansion – less direct sales notion, more demand gen through website Digital Media ARR should continue to be driven by growth of new users o International markets, single-apps, and mobile on-ramps are driving users to the platform o Strategically using promotions to capture new customers o Leveraging DDOM model to drive new user growth and convert them to paid users o Education continues to be a vertical focus – expanded Adobe ambassador network to over 100 U.S. colleges AEP is a CDP; a real-time platform to engage and have unified view of cusomter across all channels o Addressing things such as you buy a product from a website and then get ads for weeks for that same product o Or when you call customer support and they do not know what you’ve done in store or online o With a CDP - all of this data and different engagements would be tracked in real-time in one profile that can be seen by anybody on the platform o Groundbreaking technology – CDP, AEM combined with Analytics embedded into Audience Manager Adobe 3Q19 Results Recap 2 Q&A Notes from Conference Call This report is for Michael Tromp. Unauthorized redistribution strictly prohibited and considered a violation of our intellectual property. Can you help us understand what it is it going to take DX back up to growth where you are expecting? o Clarify – wasn’t any impact from macro o Interest from enterprises across all geos and verticals remains strong o Guidance accelerating sub bookings Y/Y thinking about apples over apples comparison o AEM, Campaign, and Magento had strong growth o Magento received well by customers – have done a good job of taking Magento into the enterprise o New generation of enterprise software that is going to emerge – interact with customers across different channels . Have to deliver first mile of experience which is content and commerce . Segment audiences in real-time, customer journey management and orchestration o Built the AEP from scratch to deliver DDOM o Customers really excited about it o First software that integrates needs of CMO, CIO, and CRO o Excited about installations and interest o Maybe tad aggressive in terms of what we were expecting for adoption o As we think about targets and this business o Saw some delays in bookings but has not changed our excitement about business o Talked about Marketo specifically – maybe our natural inclination was to focus on enterprise – that is going well o Mid-market is big opportunity o Much like we drove growth in Magento business – our focus will now be both on Magento and Marketo o Aligning sales organization in the field o AEP – future of analytics services, campaign services o Investments have been factored into our 4Q targets o Expanding EBIT margin as expected Digital Media strong Q – subscription growth in emerging markets – provide a little more detail on international? o Digital Media ARR across CC and DC continue to see strength o First is mobile . Mobile has been on on-ramp –especially international . Lightroom adoption has been great . Some people who come in only for mobile and buy it on app store . People come in through mobile and then want more and adopt desktop offerings o Doc Cloud shift to subscriptions international o Adobe Stock – primarily a U.S. product before .