Adobe Earnings: Both Operating Margin Ratio and Revenue Increased after Acquiring Marketo

The graphic service provider,
Adobe (NASDAQ: ADBE) announced 2018 fiscal year earnings in December 2018. Adobe achieved record annual revenue of $9.03 billion, which represents 23.7% year-over-year growth. Also, operating income reached to $2.84 billion, which grew 31% year-over-year.

Adobe is switching its business model from Product Segment (licensing business) to Creative Cloud business, especially focusing on offering subscription services. Creative Cloud provides all the services for video, design, photography, and the web, which were sold by licenses before, but can now be accessed easily on the cloud. Also, the company offers various price plans based upon apps and different terms, which gives more flexibility for the users. Besides services for individual customers, Adobe’s Creative Cloud also provides marketing solutions for enterprises, such as Coca-Cola and Master cards.

The revenues from Product segment (licensing business) lowers year by year while the revenues from Subscription segment weighted up to 88% in 2018 fiscal year.

The Digital Experience Segment revenues increased 20% from acquiring Magento and Marketo.

Adobe re-organized the business into three new segments from 2018 fiscal year, Digital Media, for providing graphic services, Digital Experience, for providing marketing services and Publishing, for providing content services.

Digital Media segment:

Besides the services that Creative Cloud provides, Digital Media segment also provides tools and solutions, such as “Acrobat DC” and “Adobe Sign” that enable individuals and enterprises to create, publish, promote and monetize digital content.

Digital Experience segment:

Digital Experience segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. The company provides “Customer Experience Management”(CXM) platform to help enhancing customers’ loyalty. The also company provides “Advertising Cloud” and “Adobe Analytics” tools to help executing marketing plans.

Adobe acquired two companies in 2018 to scale its CXM business. Adobe completed acquisition of Magento Commerce (“Magento”), a B2C commerce platform in June for $1.68 billion, and also acquired Maketo Inc. (“Maketo”), a B2B marketing platform company in October for $4.75 billion. Adobe scaled its digital marketing business into both B2C and B2B area, which gives Adobe a good balance in the market place.

Publishing Segment:

The company is planning to release its e-learning tool, “Adobe Captivate” in 2019. Adobe Captivate is said to install with VR contents to help learners navigate near real-life situations in a risk-free environment.

Currently, Digital Media segment contributed most of $6.33 billion to the revenue, with $5.3 billion come from graphic services Creative Cloud. After acquiring Magento and Marketo, Digital Experience segment revenue reached to $2.44 billion, an increase of 20% year-over-year.

Financial Targets for Fiscal Year 2019

Adobe continues to redefine the creative process with Creative Cloud business, and the company announced its next business strategy will focus on Digital Experience segment. The core strategy relies on building platform by acquiring Magento and Marketo. Next stage is targeting on artificial intelligence services by releasing a new core subscription services, Adobe Sensei. Adobe Sensei is the general term for products that uses artificial intelligence (AI) and machine learning to offer relevant experiences to every customer on the cloud.

The company forecast next fiscal year revenue increase by 23.4% to $11.15 billion, with 34% up in Digital Experience segment from acquisition of Magento and Marketo.

Also, it is said the TAM(Total Addressable Market) for Adobe is expanding to $36.7 billion of digital media market and $7.12 billion of digital experience market.

Towarding to the next stage of business, Adobe is scaling its partners rapidly.
We think it is a good company to continue to watch.

The original article was published by Stockclip, Inc. on 17/12/2018.

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