Morning Note: Market news and an update from Adobe.

Market News


 

US equity markets moved slightly higher last night – S&P 500 (+0.2%), Nasdaq (+0.3%) – with Apple overtaking Microsoft as the world’s largest company. Donald Trump told about 100 CEOs including Jamie Dimon and Tim Cook he would lower the corporate tax rate to 20%, people familiar said.

 

This morning in Asia, the yen weakened past the 158 per dollar mark after the Bank of Japan said it will specify a plan for bond purchases at the July meeting, pushing back reductions in buying until at least then. The benchmark rate was kept in a range between zero and 0.1%, as widely expected. Equity markets were mixed: Nikkei 225 (+0.2%); Hang Seng (-0.6%); Shanghai Composite (+0.1%).

 

The FTSE 100 is currently little changed at 8,165. Bellway has confirmed it made an offer to acquire rival housebuilder Crest Nicholson on 7 May, with the latter up 7% this morning. Sterling trades at $1.2734 and €1.1872, while gold is $2,315 an ounce.

 

The decline in the French bond markets continued, driving spreads to their widest level since 2017. France’s left-leaning parties will join forces in the upcoming election, with polls showing the new alliance may form the second-biggest bloc behind Marine Le Pen’s National Rally. It’s a further blow to Emmanuel Macron’s chances of emerging from the election with a firmer grip on government.

 

The German government is working to prevent new EU tariffs on Chinese EVs from coming into force — or at least to soften them should a full halt not be possible, according to people familiar. Chinese steel demand has plateaued due to its property woes, Vale’s CEO said.

 



Source: Bloomberg

Company News

 

Last night, Adobe released quarterly results which were better than market expectations and raised its guidance for the full year. There was relief that the company’s AI products appear to be gaining traction among customers and, in response, the shares were marked up by 15% in after-hours trade.

 

Adobe is a global software company best known for the Acrobat product, considered the gold standard for creating, editing, scanning, signing, and sharing digital documents. The company generates annual revenue of more than $19bn through a recurring revenue model with real-time visibility – subscriptions account for more than 90% of the total. As a result, the business tends to be fairly resilient during economic downturns.

 

The group believes every disruptive technology has presented opportunities for Adobe to innovate and increase its addressable market opportunity. This has been true for cloud computing, mobile, as well as AI. The company estimates it has an addressable market of more than $200bn, leaving it well positioned for significant growth in the years ahead with its industry-leading products and platforms.

 

The introduction of Acrobat AI Assistant, made generally available in April for English documents, marked the beginning of a new era of innovation and efficiency for the approximately 3 trillion PDFs in the world. In Creative Cloud, the group has invested in training its Firefly family of creative generative AI models with a proprietary data set and delivering AI functionality within flagship products including Photoshop, Illustrator, Lightroom, and Premiere. Since its debut in March 2023, Firefly has been used to generate over 9bn images across Adobe creative tools.  

 

During the three months to 31 May, the second quarter of its financial year to 30 November 2024, revenue grew by 11% in constant currency to $5.31bn, versus the market forecast of $5.29bn. The result was driven by strong growth across Creative Cloud, Document Cloud, and Experience Cloud.

 

Digital Media is the group’s largest division, accounting for 74% of revenue. During the quarter, revenue grew by 12% to $3.91bn, with Creative and Document Cloud up 11% and 19%, respectively. Digital Media Annualised Recurring Revenue (ARR) grew by $487m to $16.25bn. Digital Experience grew by 9% to $1.33bn, while the smallest division, Publishing & Advertising, rose by 1% to $74m.

 

The company earns very a high operating margin, in the mid-40s, and in the latest quarter, the margin nudged up from 45.3% to 46.0%. EPS grew by 15% to $4.48, above the $4.39 expected by the market.

 

The business is very cash generative, with $1.94bn generated in the latest quarter, and the group ended the period with cash and short-term investments of $8.1bn. This was despite making significant investments in its technology platforms. The group repurchased $2.5bn of its shares during the quarter, leaving $22.7bn remaining on the current $25bn programme to be completed by the end of the year.

 

Adobe raised its guidance for the FY2024 full year for Digital Media net new ARR, Digital Experience subscription revenue, and EPS. Revenue is now expected to grow by around 10% to $21.4bn-$21.5bn, while EPS is expected to grow by 13% to $18.00-$18.20. The guidance still factors in current expectations for the macroeconomic environment.

 



Source: Bloomberg

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