On Thursday, June 13th, after the post-market trading in the United States, the multinational computer software company of the United States...$Adobe (ADBE.US)$In the second fiscal quarter of the 2024 fiscal year, both revenue and profits exceeded expectations, and although the revenue guidance for the next quarter was slightly lower than expected, the full-year target was raised higher than expected. After hours, it rose by about 15% to a three-month high.

"If the stock price continues to rise until tomorrow's opening, Adobe may recover most of the decline after the first quarter report was released," some netizens joked.

"This is how I feel when I see the after-market trading of Adobe going up."

According to financial statements, Adobe's total revenue for the second quarter hit a new high of $5.31 billion, up 10% year-on-year and higher than the market's expected $5.29 billion, especially due to the accelerating growth of the digital media business after incorporating AI functionality which attracted new users.

Adjusted EPS was $4.48 per share, exceeding the expected $4.40 per share.

During the quarter, GAAP operating profit was $1.89 billion, non-GAAP operating profit was $2.44 billion, up 12%; GAAP net income was $1.57 billion, non-GAAP net income was $2.02 billion, up nearly 13%.

In terms of business segments, digital media revenue grew 11% year-on-year to $3.91 billion, exceeding the upper limit of the company's previous guidance. Among them, revenue from the Creative family of digital media applications increased by 10% to $3.13 billion, and revenue from Document Cloud increased by 19% to $782 million.

At the same time, revenue from the digital experience department, including commercial marketing and analytics software, increased 9% year-on-year to $1.33 billion, which is within the upper limit of the company's previous guidance, of which revenue from digital experience subscriptions increased 13% year-on-year to $1.2 billion, which is higher than the company's guidance.

In reflecting user growth indicators, the 'Net New Annualized Revenue'(ARR) of the digital media business was $487 million, higher than the expected $430 million, of which the newly added ARR of Document Cloud was $165 million, exceeding the expected $123 million.

This drove the company's digital media overall recurring revenue at the end of the second quarter, which ended on May 31, to $16.25 billion, with ARR of the Creative family of products increasing to $13.11 billion and that of Document Cloud increasing to $3.15 billion.

Another indicator worth noting is the current remaining performance obligations(RPO), with a contract value of $17.86 billion, which reflects a part of the future revenue trend. Operating cash flow for the quarter was $1.94 billion, and the company bought back about 4.6 million shares of stock.

Some analysts pointed out that the performance of Document Cloud was particularly strong. Recently, Adobe launched an AI assistant to help analyze and understand documents such as PDFs. Adobe's self-developed AI model, Firefly, has been integrated into flagship products such as Photoshop and Illustrator, and is developing similar features for video editing software Premiere, which is showing the "strong sales of the creative product line"as shown by the net new ARR indicators.

"The net new ARR of the Creative business exceeded expectations, indicating that customers are adopting the company's new AI tools. Adobe proves that it is participating in the AI trend. The CEO said that it is attracting an expanding user base. Since Firefly, an AI model, was launched in March of last year, it has been used to generate more than 9 billion images."

The company raised its full-year performance guidance beyond expectations, which is called "strong prospects", and the revenue in the next quarter is basically in line with expectations, and EPS is bullish.

Adobe also raised its full-year performance guidance, expecting adjusted EPS to be in the range of $18.00 to $18.20 and revenue to be between $21.40 billion and $21.5 billion, higher than the market's expected full-year EPS of $18.02 and revenue of $21.46 billion. In March, the company had expected adjusted EPS for the full year to be in the range of $17.60 to $18, with revenue between $21.3 billion and $21.5 billion.

The company expects revenue for the third quarter to be between $5.33 billion and $5.38 billion, slightly below the market's expected $5.4 billion, but its guidance for adjusted EPS for the quarter is $4.50 to $4.55, higher than the market's expected $4.48.

The company expects revenue from its digital media business to be between 3.95 billion and 3.98 billion US dollars next quarter, while analysts expect it to be 3.99 billion US dollars. The estimated net new ARR for digital media is about 460 million US dollars, and the revenue for digital experience is expected to be between 1.325 billion and 1.345 billion US dollars.

Adobe management said that thanks to the strong growth of Creative Cloud, Document Cloud, and Experience Cloud, the company achieved its highest quarterly revenue. "Our highly differentiated artificial intelligence approach and innovative product delivery have attracted more and more customers," so it has raised the annual target guidance for digital media net new ARR, digital experience subscription revenue, and EPS.

Some analysts pointed out that before the Adobe financial report caused a surge in after-market trading, the stock had fallen 23% this year, while the S&P 500 index had risen 14% in the same period. However, last year's new AI feature helped Adobe to rise 77%, hitting a historical high of $699.54 in 2021.

In recent weeks, Adobe's application software counterparts, Salesforce, Workday, ServiceNow, SentinelOne, UiPath and Veeva, have all warned of slowing demand, with some companies lowering their full-year revenue expectations, which was once a concern for Adobe's performance.

But the strong outlook for the full fiscal year in this report should alleviate investor concerns that other generative AI tools will undermine Adobe's growth potential. The report shows that the company's efforts to integrate AI capabilities into its flagship products are gaining customer support. Company management expects that the trend of new user acquisition for the Creative business will accelerate in the remaining time of this fiscal year.

Previously, some analyses stated that Adobe's profitability steadily increased between 2017 and 2023, and the market generally expects its earnings to decline this year, followed by a rebound in 2025. Last year, the company's earnings per share (eps) were $16.07, and they are expected to decrease to $14.13 per share in 2024, and then increase again to $16.17 per share in 2025.

Editor/Somer