On Thursday night, Adobe Inc. (ADBE) reported the firm's fiscal second quarter performance. Adobe merely knocked the cover off of the ball. Once again. The firm posted GAAP EPS of $2.32, or adjusted EPS of $3.03. Either way, the result was a serious beat of Wall Street's expectations. Revenue generation landed at $3.84 billion. That number beat the street by more than $100 million, and was good enough for annual growth of 22.7%.
The firm reports two business segments... Digital Media and Digital Experience. Digital Media contributed $2.79 billion to the revenue whole, up 25%, while Digital Experience pitched in $938 million. up 21%. Within Digital Media, there are two cloud businesses... Creative Cloud and Document Cloud. Creative Cloud is the largest by far... this is where you find Photoshop, Illustrator and the like. This business produced sales of $2.32 billion, up 24%. Document Cloud is where you'll find Acrobat and the firm's e-signing services that compete directly with DocuSign (DOCU) . This business contributed $469 million, up 30%. The firm has a third cloud business, Experience Cloud which is the driver behind the Digital Experience segment. This business provides marketing software and services to business clients.
Digital Media Annualized Recurring Revenue (ARR) increased $518 million q/q to $11.21 billion. Creative Cloud ARR increased to $9.53 billion, and Document Cloud ARR grew to $1.68 billion. Digital Experience subscription revenue grew 25% to $817 million. Firm wide, adjusted operating income amounted to $1.76 billion, resulting in adjusted net income of $1.46 billion. Cash flow from operations hit $1.99 billion, which is a record. Remaining Performance Obligations (RPO) increased 23% to an incredible $12.23 billion.
For the third quarter, the firm has laid out a number of what they refer to as targets. The firm is targeting adjusted EPS of $3.00 on revenue of $3.88 billion. Wall Street is generally around $2.90 on revenue of $3.83 billion on these metrics. The total revenue target if spot on, would imply year over year growth of 20.3%, which would be a sequential deceleration, but highly accelerated from the 14% annual growth reported for the comparable year ago period.
The firm is shooting for 22% growth in revenue provided by Digital Media, while that segment drives $440 million of net new ARR. The target for Digital Experience revenue generation is for growth of 21%, while driving 25% growth in subscription revenue.
Your old buddy is wishing this morning that he hadn't taken all of his profits in ADBE. a former Sarge darling. The shares are breaking out in earnest in a down tape on Friday morning after reporting the night prior. I see two patterns that could be providing this breakout from a technical perspective. The longer, overriding pattern is the long basing period of consolidation outlined in blue. For this pattern, the pivot would be the high point of the range ($536) which came way back in early September.
However, within that period of consolidation is a traditional cup with handle pattern outlined in orange that could just look like the last couple of gyrations within the more established consolidation. Should this be that case, the pivot would be $525. Why it matters is in placing a target price on the shares. Conservatively, the $536 pivot creates a target price of $643, while the $525 pivot creates a target price of $630.
No, it's not too late to get long, or re-enter Adobe. The trick is doing so intelligently. I don't know about you, but I generally don't chase high-priced stocks up 2% for the day, with an RSI reading above 70. Just not my style. I think pure equity players will have to wait.
For our options traders who don't mind getting paid to expose themselves to potential equity risk at a discount, the stock's July 16th $520 puts, which is where the current 21 day EMA lives, are still paying about $3.25, while someone willing to write January $400 puts can still get paid $6 to $7. I don't think it gets there (no promises), but even if that leaves the trader with no equity, it's still a $600 to $700 pay day.