Adobe eyes $15bn in revenue in 2021 as Q4 numbers beat expectations

Profile picture for user ddpreez By Derek du Preez December 11, 2020 Audio version
Summary:
Digital experiences vendor Adobe is seeing its product portfolio gain traction as buyers adapt to their new COVID-19 reality.

Adobe CEO Shantanu Narayen
(Adobe CEO Shantanu Narayen, Adobe Summit)

It has been another strong quarter for Adobe in 2020, as the digital experiences vendor saw growth across all segments of its business and CEO Shantanu Narayan said that he expects the company to hit $15 billion in revenue in 2021. 

Narayan also commented on Adobe's recent $1.5 acquisition of work management vendor Workfront, highlighting the companies' shared customers and opportunities for joint expansion. 

He added that Adobe's product portfolio is well placed to take advantage of the COVID-19 opportunity, as buyers seek to make decisions that shift their processes and services towards digital. 

On the numbers, Adobe reported: 

  • Q4 revenue of $3.42 billion, which represents a 14% year-over-year growth. 

  • Annual revenue of $12.87 billion, which represents 15% year-over-year growth. 

  • Operating income grew 30% and net income grew 78% year-over-year. 

Commenting on the numbers, Narayan said: 

None of us could have predicted how everything would change overnight, and the world as we know it would change so dramatically. Digital has even more become the primary way for people to connect, work, learn and be entertained. This new reality has only increased the importance and relevance of our solutions and accelerated the tailwinds that benefit our business. This combined with our business fundamentals, unparalleled innovation, and world class execution continues to drive our growth.

It is our innovation engine that I'm most proud of as we continue to fire on all cylinders. With Creative Cloud, we continue to remain the clear leader in a category that's exploding. We added greater collaboration capabilities to all of our leading applications. And we continue to break ground in new categories, while improving engagement as well as customer satisfaction.

The Document Cloud continues to have huge demand in this digital environment, with PDF and Adobe Sign all being mission critical across many businesses. We delivered more capabilities, or verbs as we refer to it, across desktop, web, mobile, and through our frictionless PDF services.

And with Experience Cloud, we continue to build out the world's most comprehensive customer experience management portfolio. And the new capabilities in the Adobe Experience platform have now been expanded to include real-time customer profiles. We delivered new services, intelligence services to further the use of artificial intelligence and machine learning in organizations.

On the Workfront acquisition, which was announced just last month, Narayan said that it broadens its opportunity in the customer experience management category, adding to its solutions that already include content and commerce, customer journey management, and customer data and insights. Read my colleague Phil Wainewright's full analysis of the Workfront acquisition here

Narayan explained that whilst Adobe mostly prioritizes organic growth, it does look to acquisitions when there are opportunities to scale. Commenting on Workfront, he said: 

We have a longstanding set of partners and an ecosystem with Workfront with over 1,000 joint customers. And Workfront is already equipped with APIs for not just Experience Cloud, but also Creative Cloud, which represents opportunities to further leverage and deliver synergies across our businesses.

Trends

Narayan took Adobe's results as an opportunity to talk through the macro trends he's seeing in the market, where he said that there has been a "tectonic shift" towards digital, which has been accelerated by the events of this year. This is something we at diginomica have been commenting on throughout 2020, as it appears that buyers are doubling down on investment decisions and moving at a faster pace than they were a year ago. Narayan said: 

The genie is not going to go back into the bottle. And even regulated industries that have traditionally been slower to embrace digital have certainly picked up the pace this year. The way we work will never be the same again. And it's great to see how the PC has experienced a tremendous revival as the computing workhorse. Documents are at the center of how work gets done. Paper to digital transformation is only accelerating, and every business process is going digital because every business is now a digital business.

And I believe we win by creating path breaking technology platforms that will lead the industry for decades, and today work across the entire computing paradigm from the largest clouds to the smallest devices, and are built with a service oriented architecture that also enables us to have new monetization models.

Narayan believes that Adobe is well positioned to take advantage of this opportunity, across its three core business segments - Creative Cloud, Document Cloud and Experience Cloud. On the latter segment - Experience Cloud - Narayan is particularly bullish, where he said: 

In fact, our three industry leading cloud offerings are more mission critical than ever before across every geography and audience. With Creative Cloud, we're unleashing creativity for all giving anyone anywhere the tools to express their creativity.

The reality today is that customers are expecting this engaged personalized digital experience, and we want these interactions to feel easy and efficient. They need to be well designed, they need to be context aware, and they need to be seamless across channels and secure and delivered at the exact microsecond at which we expect it.

And delivering a next generation platform to deliver and drive this experience is easier said than done because it requires businesses to completely merge content, data and artificial intelligence to deliver this compelling, relevant personalized experience in real time. And the truth is that companies must design for this brilliance, but wire for intelligence.

I certainly believe that Adobe's best days are ahead of us. We expect to cross $15 billion in revenue next year. We have a huge addressable market, industry-leading applications, services and platform and an unparalleled innovation engine.

My take

Despite beating analyst expectations, Adobe's stock dipped on the latest numbers. Uncertainty around the scale of the opportunity, whilst we are still in the midst of the pandemic, is likely dampening enthusiasm somewhat. However, our view is that Adobe is fairly well positioned to tackle the needs of enterprises shifting to digital processes, given the partnerships it has in the market with B2B cloud vendors and its product portfolio. What it needs to do is get in front of buyers now as they are making those long-term decisions and sell a convincing story around that complementary portfolio.