[Overseas Stocks Spotlight] Adobe, a Leading Beneficiary in the Contactless Era

[Asia Economy Reporter Eunmo Koo] Adobe Systems (Adobe·ADBE.US), a key player in content creation tools and electronic signature business, is being highlighted as a representative beneficiary in the untact (contactless) era.

Adobe's revenue for the second quarter of fiscal year 2020 (ending in May) increased by 14% year-over-year to $3.13 billion, slightly below market expectations ($3.16 billion), but excluding the strategically reduced advertising cloud business impact, it exceeded expectations. Due to the reduction in low-margin business proportion and decreased employment and travel costs, the adjusted operating margin improved by 4.4 percentage points year-over-year to 42.7%. Adjusted earnings per share (EPS) rose 34% to $2.45.

While demand for content creation and electronic signatures is surging, advertising business revenue is slowing down. On the 13th, analyst Jaeim Kim from Hana Financial Investment explained in a report, “The environment where digital content creation and electronic signature demand are rapidly increasing due to the rise in remote work and online lectures is acting as a positive factor.”

Traffic on Adobe.com reached an all-time high, and mobile app downloads increased by more than 40%. The monthly active users (MAU) of Photoshop Express exceeded 20 million. Revenue from Creative Cloud (CC), which provides content creation tools via the cloud, grew 17% year-over-year to $1.87 billion, and Document Cloud (DC), which offers electronic signature solutions, achieved $360 million in revenue, a 22% increase.

On the other hand, due to corporate clients cutting marketing expenses, revenue from the Digital Experience (DX) segment recorded $830 million, growing only 5.4% year-over-year. Analyst Kim evaluated, “Adobe is strategically reducing the proportion of low-margin products within the advertising cloud business, which is expected to have a positive long-term impact.”

The channel sales business, which has a high proportion of small and medium-sized enterprise (SME) clients, showed revenue slowdown in the second quarter but is expected to gradually recover starting from the third quarter. Adobe presented a conservative third-quarter outlook reflecting traditional seasonality without factoring in the SME client recovery. The revenue guidance of $3.15 billion represents an 11% increase from the same period last year but falls short of the consensus ($3.28 billion). Analyst Kim stated, “However, considering the U.S. government's active financial support for SMEs and the sustained strong demand in the digital media sector confirmed in early third quarter, a faster recovery than the guidance is expected.”

The increase in individual content creation demand and corporate digital transformation are mid-to-long-term trends, which have been further accelerated by the impact of COVID-19. Analyst Kim said, “The slowdown in DX revenue is short-term, and business structure improvements are expected to contribute to profitability growth in the mid-to-long term,” adding, “Adobe, a key player in content creation tools and electronic signatures, is a representative beneficiary of untact demand and has high investment attractiveness.”

This content was produced with the assistance of AI translation services.