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How Adobe’s Digital Media Segment Helped It Post Growth in 2Q16

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Adobe’s Digital Media segment increased 26% in fiscal 2Q16

Previously in the series, we looked at Adobe Systems’ (ADBE) record performance in its fiscal 2Q16 results. Let’s look now at the company’s Digital Media segment, which increased 26% in fiscal 2Q16. In fiscal 1Q16, it contributed 68% toward the company’s overall revenue.

Adobe’s transition toward the subscription model put the company’s ARR (annualized recurring revenue) in the limelight. ARR gives us a glance into how much revenue the company is making from subscriptions. In fiscal 2Q16, Digital Media’s ARR grew ~8.4% to $3.4 billion and is expected to reach ~$4 billion by the end of fiscal 2016.

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Increased cloud adoption

Increased cloud adoption benefited Adobe’s Creative Cloud growth. Creative Cloud is a subsegment of Adobe’s Digital Media segment. It enabled Digital Media to grow by 26%. It posted $943 million in revenue in fiscal 2Q16.

Adobe’s Creative Cloud revenue grew 37% on a YoY basis in 2Q16. Adobe generates Creative Cloud revenue from offerings such as Photoshop and Illustrator. Adobe didn’t disclose the sub numbers of Creative Cloud. Photoshop is available on Apple’s (AAPL) iOS and Google’s (GOOG) (GOOGL) Android systems. Creative Cloud is also hosted on Amazon (AMZN) Web Services.

Document Cloud reported $188 million in revenue. Its ARR increased to $415 million in 2Q16.

You could consider investing in the Technology Select Sector SPDR ETF (XLK) to gain exposure to Adobe. It accounts for 1.1% of XLK. The fund invests ~38% of its holdings in application software.

Now let’s look at Adobe’s Digital Marketing performance in fiscal 2Q16.

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