Will Adobe’s (ADBE) Q3 revenue benefit from digital media?
AdobeADBE’s results for the third quarter of fiscal 2022, which are expected to be released on September 15, should reflect the strength of its digital media segment.
Digital media has been the main driver of the company’s growth through its Creative product line and its document services products.
The company’s persistent efforts to strengthen its content management capabilities should have continued to drive growth in the digital media segment in the quarter ahead.
Notably, the segment under discussion generated revenue of $3.2 billion in the second quarter of fiscal 2022, which improved 15% year over year.
For the third quarter of fiscal 2022, Adobe forecasts 13% year-over-year revenue growth from digital media. Zacks’ consensus estimate for digital media revenue for the quarter under review is set at $3.24 billion, suggesting a 13.2% increase over the reported figure for the year-ago quarter former.
Click here to find out how the company’s overall third-quarter results are likely to be.
Adobe Inc. award and EPS surprise
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Factors to Consider
Strong momentum in Adobe Creative Cloud and Document Cloud is expected to have driven revenue growth in the digital media segment in the quarter ahead.
The growing proliferation of 3D and the Metaverse platform, which created demand for new types of content, should have been a major tailwind. Strong mobile app momentum should have contributed well to Creative Cloud’s revenue growth.
Positive contributions from the acquisition of Frame.io and its integration with creative software like Adobe Photoshop, Adobe Premier Pro, After Effects and other Adobe Creative Cloud applications are likely to have driven growth.
The company’s launch of a feature called Photo Restoration Neutral Filter in Photoshop likely continued to boost Photoshop’s adoption rate in the quarter under review.
Increased traffic on the Adobe Express platform should have helped Creative Cloud’s performance.
Zacks’ consensus estimate for Creative Cloud’s fiscal third quarter revenue is set at $2.66 billion, suggesting a 12.1% improvement over the figure reported for the prior year quarter .
The growing adoption of Acrobat, Adobe Sensei and the strong momentum of Acrobat web services should have contributed well to Document Cloud’s revenue growth.
Growing demand for Acrobat Mobile and Adobe Scan, as well as the strength of Adobe Sign, should have benefited Document Cloud in the quarter under review.
The integration between Acrobat and Adobe Express has likely continued to drive PDF demand.
Zacks’ consensus estimate for Document Cloud revenue in the fiscal third quarter is pegged at $582 million, indicating an 18.1% improvement over the figure reported for the year-ago quarter.
All of the factors mentioned above should have contributed well to Creative’s annualized recurring revenue (“ARR”) and Document Cloud’s ARR, which in turn should have driven the growth of digital media ARR in during the quarter to be published. .
The company’s net new ARR in the digital media segment is expected to be $430 million for the quarter under review.
However, ongoing tensions between Russia and Ukraine are expected to have affected digital media ARR in the third fiscal quarter.
Zacks Ranking and Stocks to Consider
Currently, Adobe carries a Zacks Rank #4 (selling).
Investors interested in the broader tech sector may consider some higher-ranked stocks as Monolithic power systems MPWR, Teradata TDC and IPG Photonics IPGP, each carrying a Zacks Rank #2 (Buy) at present. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Monolithic Power Systems has lost 9.4% since the start of the year. MPWR’s long-term earnings growth rate is currently projected at 25%.
Teradata has lost 22.5% since the start of the year. TDC’s long-term earnings growth rate is currently projected at 27.4%.
IPG Photonics has lost 48.4% since the start of the year. IPGP’s long-term earnings growth rate is currently projected at 4.3%.
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