Adobe Achieves Record Q1 Results as Creative Cloud Soars

In the first quarter of FY16, Adobe achieved record revenue of $1.38 billion, which represents 25 percent year-over-year growth.

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Adobe reported record financial results for its fiscal 2016 first quarter, including record earnings for its creating and marketing cloud units.

Adobe, which sells tools for designers and developers to create compelling digital experiences, said revenue in its Digital Media segment grew 33 percent year-over-year, to a record $932 million, with the company's Creative unit revenue growing 44 percent year-over-year, to a record $733 million.

For the quarter ended March 4, Adobe achieved record revenue of $1.38 billion, representing year-over-year growth of 25 percent.

Adobe's products enable customers to create applications, Websites and content that users can access from virtually any device, including smartphones, tablets, PCs and televisions. The company's offerings include Adobe Creative Cloud, which consists of the Adobe creative tools delivered as cloud-based services for creating digital media. Adobe also has Document Cloud and Marketing Cloud units. The Adobe Document Cloud enables users to manage documents at home, in the office and across devices. And Adobe Marketing Cloud provides solutions for data-driven marketing.

For the first quarter, Adobe Marketing Cloud achieved strong bookings growth, and record revenue of $377 million that represents a year-over-year gain of 21 percent.

"Every day, more brands, government agencies and educational institutions globally are choosing to base their digital strategies on Adobe's content and data platforms," Shantanu Narayen, Adobe president and CEO, said in a statement. "Our exceptional performance in Q1 is an indicator of the strong momentum we are seeing across our cloud businesses as we drive the experience economy."

During Adobe's earnings call reporting its first-quarter results, Narayen said, "There are three primary growth drivers for Creative Cloud as we target a $17 billion addressable market: continuing to migrate our core base of Creative users, market expansion into new segments and value expansion through new services."

In Digital Media, Creative Cloud momentum continued in the first quarter with strong adoption across all segments, Narayen said.

"There have never been more people creating content. Whether it's creative professionals, photographers, students or hobbyists creating compelling images, videos, Websites, or mobile applications, our opportunity is to provide them with a one-stop shop for all their creative needs," he noted.

Al Hilwa, an analyst with IDC, remarked on Adobe's quarter, saying the company has positioned itself to be in the right place at the right time.

"With so much digitization taking place in content, graphics and Web, Adobe is riding the crest of the digital transformation," Hilwa said. "The company's transition to cloud remains a textbook case study of how to execute on such a challenging shift for desktop software. The company has also shifted its software development process from two-year release cycles to a continuous flow of new functionality.

"Strong innovation seems to have continued even as the company expands. Last week Adobe introduced an interesting prototyping and design offering called Experience Design (XD) that shows its deep understanding of its customer base and their needs. The company also appears to be making smart acquisitions to build out its digital marketing competency," Hilwa continued.

Narayen noted that Adobe's migration strategy focuses on driving Creative Suite users to the company's core offerings, Creative Cloud for individuals, teams and enterprises. In the first quarter, Adobe executed well against this opportunity, driving adoption across all routes to market, including, the company's channel partners and Adobe direct sales, he said.

Meanwhile, Adobe's market expansion strategy is to bring in new users, including photo enthusiasts and hobbyists, with its Creative Cloud Photography plan, Narayen said. More than 30 percent of Creative Cloud subscribers are new to Adobe, and many are coming to the company through its mobile apps. More than 23 million new Adobe IDs have been created through Adobe mobile apps to date, he said.

Regarding potential challenges, Hilwa said: "I think the question is, what is the target addressable market of Creative Cloud? Is there a ceiling? The product has blown past any reasonable estimate of professional graphics designers in the world. The company has shown that they can continue to reach into photography and other hobbyist design audiences that seem to be willing to pay something to have access to the tools the pros use. Adobe is betting that the creative in all of us is dying to come out, given the right tools at the right price. And they may be right."