Adobe (NASDAQ: ADBE) Stock Jumps On Strong Earnings

It’s been a wild few months for Adobe (NASDAQ: ADBE) investors and it doesn’t look like things are going to settle down anytime soon. After jumping 50% from November of last year through February where they were setting fresh highs on an almost daily basis, investors must have been getting nervous when shares fell 35% in just four weeks through March.

That bout of selling was part and parcel of the coronavirus’ spread, which saw factories shut, people ordered to shelter-in-place and a mass exodus from equities. However, since what now looks like the market-wide low set in March, many of the companies that were trading at highs before the crash are already back up there and plowing on.

Tech giant Adobe is no different and with a sixth consecutive daily all-time high being set during Tuesday’s session, shares are now up a full 70% in little more than two months. For all wants and purposes, it looks like some form of normality has returned. Despite the initial wave of selling, to which no stock was immune, Wall Street quickly surmised that the seismic shift to working-from-home would lead to increased demand for Adobe’s cloud and web-based services.

Double-Digit Percentage Growth

The latest bit of momentum in the stock is coming from the company’s Q2 earnings which they released earlier this month. EPS came in ahead of analyst expectations and although revenue was slightly off, it was still up 14% year on year. Posting double-digit percentage growth after one of the most unpredicted and vicious market crashes in history is not to be sniffed out. There are plenty of other companies out there who’d kill for it, tech names included.

Broken down, there was plenty for investors to be happy with. Adobe’s Digital Media segment posted 18% year on year growth and its Digital Experience recurring revenue, excluding Advertising Cloud revenue, grew 18% too. The Advertising Cloud business has been a drag on operations and is notorious for its low margins. Management stated with the quarterly report that the difficult macroeconomic conditions of the first half of 2020 actually helped to speed up their strategy of eliminating such inefficient offerings from the business.

In a note to investors, CEO Shantanu Narayen said “Adobe’s strategy to empower customers to create the world’s content, automate critical document processes and enable enterprises to engage with their customers digitally, drove record revenue in Q2. The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”

Management Aligned with Shareholders

It was certainly bullish talk with a bullish report and investors haven’t been slow about buying into management’s optimism. To be fair, they had a strong track record coming into the COVID-19 pandemic and it looks like they want to return to winning ways. Between 2017 and 2019, management grew revenues by more than 50% and they haven’t been slow about putting the additional capital to work to return value to shareholders. Over the past two years, they’ve spent close to $5 billion in share repurchases which goes a long way to helping investors achieve significant capital appreciation.

The risk of a second COVID-19 wave and reduced consumer spending as a result remains but there is a long list of companies who are more nervous about that happening than Adobe. It was a winner coming into the crisis and so far, it’s a winner coming out of it.