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Adobe’s Success Story Continues with Its Fiscal 4Q16 Results

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Part 3
Adobe’s Success Story Continues with Its Fiscal 4Q16 Results PART 3 OF 7

How Digital Marketing Contributed to Adobe’s Fiscal 4Q16 Results

Marketing Cloud drives Digital Marketing’s growth

Previously in this series, we saw how consistently strong growth in the Digital Media segment helped Adobe Systems (ADBE) post better-than-expected fiscal 3Q16 results. In this part, we’ll look at the performance of Adobe’s other operating segment, Digital Marketing. Digital Marketing caters to the rapidly growing big data analytics, mobility, and social media spaces, which are rapidly changing the IT landscape.

How Digital Marketing Contributed to Adobe’s Fiscal 4Q16 Results

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The SMAC (social, mobile, analytics, and cloud) revolution, coupled with increased spending in the digital marketing space, has benefited Adobe. Adobe’s Digital Marketing segment grew ~21.6% to $488.5 million in fiscal 4Q16 on the back of a consistent increase in its Marketing Cloud revenues. For fiscal 2016, its Marketing Cloud revenues grew 15% to total ~$1.7 billion.

Increased activity in the marketing cloud space threatens Adobe’s dominance

Adobe Marketing Cloud, which grew 32% to $465 million, plays a significant role in the growth of this segment. For fiscal 2016, it grew 20% to record ~$1.6 billion in annual revenues.

In its December 15 earnings call, Adobe announced that Pandora, United Healthcare, UPS, Verizon (VZ), Lufthansa, and Defense Information Systems Agency were added to the company’s customer base as new Marketing Cloud customers.

Although Adobe dominates the marketing cloud space, increased participation from Salesforce (CRM), Oracle (ORCL), and IBM (IBM) in this space has impacted Adobe’s growth in the marketing cloud space.

Salesforce

In particular, Salesforce is aggressively chasing the marketing cloud space. In October 2016, it announced the acquisition of Krux. Krux is a data management company that tracks the data signature across several devices from desktops to mobile and tablet and channels from social media and search, displaying it to video. Salesforce noted that it paid ~ $340 million in cash plus stock. The Wall Street Journal estimates the deal is worth $700 million.

ExactTarget, Buddy Media, Radian6, Relate IQ, and Heroku are some of the strategic buyouts that Salesforce acquired and integrated to equip its marketing cloud. Salesforce spent roughly $4 billion on these acquisitions.

Salesforce’s marketing cloud got a boost from its acquisition of Demandware, and the company expects a $1 billion run rate from its marketing cloud. In 2016, Oracle acquired AddThis and NetSuite to boost its position in the data and marketing cloud space.

Later in this series, we’ll discuss Adobe’s strategic initiatives to retain its dominance in the marketing cloud space.

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