As Adobe’s consumer-facing businesses soar, CEO Shantanu Narayen continues to voice great enthusiasm for the company’s Digital Experience enterprise business despite 2% growth in Q3 and no-growth guidance for next quarter.
Let’s take a look at those challenges before exploring Narayen’s rationale for being bullish on Adobe’s enterprise prospects.
- It’s extremely difficult for a tech company to serve two masters: consumers and enterprise. Microsoft has managed to do so but its consumer businesses are dwarfed by its enterprise revenue. Google’s G Suite is certainly used by lots of consumers but its growth potential is anchored in the enterprise market.
- Salesforce’s strength across the CRM category is so powerful that other vendors must be very precise in selecting subsegments where they can hope to pounce on opportunities Salesforce is not pursuing.
- Adobe’s still recovering from its ill-fated move into an Advertising Cloud as part of its enterprise business. The adverse financial impact of the Advertising Cloud is what obscures the current and future growth opportunities for the Digital Experience business.
- Adobe’s positioning of its enterprise business is still unclear. While it might very well have some excellent technologies and products to offer, its position in the market remains elusive to enterprise buyers and will remain so until company leadership give it the same priority as they do their consumer businesses.
For its Q3 that ended in late August, Adobe said its Digital Experience revenue was $838 million, up 2%. Within that total, subscription revenue was up 7%–but as Adobe has been pointing out whenever possible, that subscription growth would have been 14% for Digital Experience *if* Adobe were able to exclude the results from its Advertising Cloud. “We continue to wind down the transaction-driven ad network business in Advertising Cloud,” the company said.
In spite of those challenges, CEO Narayen appears to be quite bullish on the Digital Experience business. Here are a few of his perspectives from last week’s earnings call:
The surging significance of digital:
Entire industries, from media and entertainment to pharma, retail, automotive and financial services, have had to pivot overnight to digital operations to engage with customers and ensure business continuity. Electronic workflows and signatures are the only way to efficiently complete business transactions. The world has changed in a way that none of us could have ever foreseen. This reality has created new tailwinds for Adobe. Our mission to change the world through digital experiences has never been more critical…. The shelter-in-place requirements instituted across the globe created a heightened sense of urgency among all companies to accelerate their digital transformation. Overnight, small, mid-sized and large B2C and B2B companies shifted every aspect of their customer relationships – from acquisition all the way through renewals – to digital.
In his prepared remarks about how Adobe is looking to capitalize on that powerful paradigm shift to digital, Narayen offered the following list of steps:
Q3 highlights include:
- Increased adoption of Adobe Experience Platform and the launch of new capabilities that allow marketers to accelerate data collection across channels to enable faster, personalized experiences based on real-time insights;
- General availability of Data Governance capabilities in the Real-time Customer Data Platform (CDP);
- Early traction with our Customer Journey Analytics service, which provides customers a complete view of the customer journey—online and offline;
- Acceleration in the deployment of our Adobe Experience Manager Cloud Service;
- Significant quarter-over-quarter growth for Commerce offerings;
- Working with our Advertising Cloud customers to wind-down our transaction-based offerings;
- Key customer wins, including Eli Lilly, Truist, Nike, Lowe’s, Shell, Lloyds and theUS Department of Commerce;
- A partnership with IBM and Red Hat to enable Experience Cloud deployment in hybrid cloud environments that further strengthens real-time data security for enterprisesin regulated industries; and
- Recognition as a Leader in six Gartner Magic Quadrant and Forrester Wave reports. In the Gartner Magic Quadrant for CRM Lead Management, Adobe was the leader, achieving thebest scores across ‘Ability to Execute’ and ‘Completeness of Vision.’
Okay—that all sounds impressive. So what’s the outlook for Q4?
And this is where Adobe faces a major challenge: CFO John Murphy noted that the Digital Experience revenue is projected to be flat in Q4 year over year, and that subscription revenue is projected to be up 1% year over year.
But—without factoring Advertising Cloud into the mix, subscription revenue is projected to be up 12% for Q4.
In spite of all that, Narayen is bullish on the prospects for Digital Experience in large part because of the leadership of Anil Chakravarthy. In the Q&A portion of the earnings call, Narayen said this about Chakravarthy:
“His has been the fastest ramp that I have seen of any executive that we’ve got. He’s doing an absolutely fantastic job, and a great addition to what you know is already a very strong management team that I’m blessed with at Adobe.”
Plus, Narayen said, the Digital Experience team is now focused on customers more than ever before.
“The second area is with the unified organization really focusing on the customers and the customer centricity and what we are doing with partners,” Narayen said.
“The structure for U.S. and international is set up and Anil is focused on aggressively evangelizing both our vision as well as the differentiation in the marketplace.”
We’ll keep a close eye on Adobe to see if Narayen’s bullishness is merited.
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