Creative software maker Adobe (NASDAQ:ADBE) reported Q4 CY2024 results beating Wall Street’s revenue expectations , with sales up 11.1% year on year to $5.61 billion. On the other hand, next quarter’s revenue guidance of $5.66 billion was less impressive, coming in 1.2% below analysts’ estimates. Its non-GAAP profit of $4.81 per share was 3% above analysts’ consensus estimates.

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“Adobe delivered record FY24 revenue, demonstrating strong demand and the mission-critical role Creative Cloud, Document Cloud and Experience Cloud play in fueling the AI economy,” said Shantanu Narayen, chair and CEO, Adobe.

Company Overview

One of the most well-known Silicon Valley software companies around, Adobe (NASDAQ:ADBE) is a leading provider of software as service in the digital design and document management space.

Design Software

The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last three years, Adobe grew its sales at a 10.9% compounded annual growth rate. Although this growth is solid on an absolute basis, it fell short of our benchmark for the software sector. Luckily, there are other things to like about Adobe.

This quarter, Adobe reported year-on-year revenue growth of 11.1%, and its $5.61 billion of revenue exceeded Wall Street’s estimates by 1.2%. Company management is currently guiding for a 9.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.7% over the next 12 months, similar to its three-year rate. This projection is above the sector average and indicates its newer products and services will help maintain its historical top-line performance.

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Billings

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Adobe’s billings came in at $5.96 billion in Q4, and over the last four quarters, its growth slightly lagged the sector as it averaged 9.4% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers.

Customer Acquisition Efficiency

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Adobe is quite efficient at acquiring new customers, and its CAC payback period checked in at 35.9 months this quarter. The company’s performance gives it the freedom to invest its resources into new product initiatives while maintaining optionality.

Key Takeaways from Adobe’s Q4 Results

It was good to see Adobe beat analysts’ revenue, EPS, and adjusted operating income expectations. On the other hand, its full-year revenue and EPS guidance missed Wall Street's estimates. Overall, this was a weaker quarter because of the soft outlook. The stock traded down 5% to $522.32 immediately after reporting.

Adobe underperformed this quarter, but does that create an opportunity to invest right now? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.