Morningstar | Underlying Results Ahead; ASC 606, Marketo and Magento Deals Distort Guidance; FVE Unchanged at $296
Wide-moat Adobe reported solid results for its fiscal first quarter, providing upside versus our and street expectations for revenue and EPS. Strength was broad based, with revenue upside and some one-time items also contributing. Revenue and EPS guidance for the second quarter were both light, which is not surprising since it was the first quarter the company reported after adopting ASC 606. Revenue guidance for the year was unchanged, while GAAP EPS was raised $0.05, despite $0.22 of EPS upside relative to guidance. We made minor adjustments to our model to account for better direction from management regarding the linearity of the year. Adobe expects less revenue and lower margins in the next quarter, with ASC 606 and purchase accounting effects from the Magento and Marketo acquisitions from last year becoming less pronounced by year-end. Various minor puts and takes in our model result in no change to our fair value estimate of $296.Despite the mismatch between results and expectations this quarter, and guidance and expectations next quarter, nothing alters our thesis. We believe Adobe dominates the creative space and the acquisition of Magento and Marketo last year solidified Adobe as a digital marketing platform leader.
First-quarter revenue grew 25.1% to $2.60 billion, driven by strength in all three segments. ASC 606 had a $20 million positive impact on revenues. Management highlighted the Adobe Creative Cloud and Document Cloud as strong, but upside relative to our model on a dollar basis was loosely evenly distributed among digital media, digital experience, and publishing. Digital Media grew 22% year over year, while Digital Experience grew 34%, and Publishing grew 26%. Digital experience was driven by the Magento and Marketo acquisitions, with management calling out strong cross-selling of Magento, while publishing benefited the most from ASC 606 adoption.
Higher revenues fell through to the bottom line, with the non-GAAP operating margin coming in 190 basis points better than our model. The company delivered lower expenses on every line item, resulting in $1.71 in non-GAAP EPS, which was up 10% year over year, and $0.14 ahead of our model.
Adobe is a software company. The company provides a line of products and services used for creating, managing, delivering, measuring, optimizing, engaging and transacting with content across personal computers, devices and media. The company's segments are: Digital Media, which provides products, services and solutions that enable individuals, teams and enterprises to create, publish and promote their content; Digital Experience, which provides a platform and set of applications and services through Adobe Experience Cloud; and Publishing, which contains products and services that address market opportunities including eLearning solutions, web conferencing, web application development and printing.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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