M&E Connections

Adobe CEO: Magento Purchase Expands Market Opportunity

Adobe’s recent $1.68 billion purchase of e-commerce company Magento stands to give Adobe a boost on multiple fronts, starting with the ability to “seamlessly integrate” commerce into Adobe Experience Cloud, according to Shantanu Narayen, Adobe CEO and president.

“We believe the addition of Magento expands our available market opportunity, builds out our product portfolio, and addresses a key underserved customer need,” he said June 14 during an earnings call for Adobe’s second quarter (ended June 1).

“Commerce is an integral part of an end-to-end customer experience as consumers and businesses now expect every interaction to be shoppable,” he told analysts. Adding Magento Commerce to Adobe Experience Cloud will deliver “a single platform that serves both B2B and B2C customers globally while providing the flexibility to scale to serve mid-market and large enterprise customers,” he said, noting the Magento Platform is “supported by a robust community of more than 300,000 developers and a partner ecosystem that provides thousands of pre-built extensions, including payment, shipping, tax and logistics.”

The Magento purchase “will make Adobe the only company with leadership in content creation, marketing, advertising, analytics and now commerce – enabling real-time personalized experiences across the entire customer journey – whether on the web, mobile, social, in-product or in-store,” he said.

In addition, when combined with Adobe’s content and data platform, and “leveraging” Adobe’s Sensei machine learning and artificial intelligence framework, “this latest capability will further differentiate Adobe Experience Cloud as the leading platform for Experience Businesses,” he said, adding: “We expect the acquisition to close next week.”

Adobe demonstrated Project Aero, a new augmented reality (AR) authoring tool, at the recent Apple Worldwide Developers Conference, he also noted, calling Aero a system that “makes it easier for designers and developers to create immersive content and bridge the gap between the physical and digital worlds.” He added: “With close to one billion AR-enabled devices expected to be in market next year, AR can drive a new wave of digital transformation and creativity.”

Asked during the earnings call’s Q&A how the recently implemented General Data Protection Regulation (GDPR) in Europe will impact Adobe, he said: “The trend towards online businesses and digital spend and the desire on the part of enterprises to understand attribution is only going to increase. More money is going to be spent digitally but the bar of how that’s being spent and the understanding and effectiveness of that marketing and spend is only going to increase. And I think big picture, we look at that as a big opportunity for Advertising Cloud, because not only are we a channel for the major online marketing platforms like search, social, display and TV, but we are unique in that we have sort of the broadest perspective of efficacy across all marketing spends.”

Additionally, he said: “All companies will need to balance the customer acquisition where this third-party data plays an important role. And the more important issue for all companies is going to be customer engagement…and how you engage with them. And there, I think leveraging the first-party data is going to become even more crucial. And so, we look at it and say we have the best of both worlds. The Advertising Cloud will continue to focus on helping customer acquisition. But really the energy is going to be spent by companies more on Marketing Cloud, where engagement is going to be even more critical in this world of GDPR, so that you don’t in any way impact the trust that you have built with companies. And I actually think analytics also across both acquisition and engagement will become even more critical in this new environment.”

Analysts at Pivotal Research Group “strongly concur” with Adobe’s GDPR comments, analyst Brian Wieser said in a research note June 15. He went on to say: “We think large brands will be drawn to continue to invest in marketing technology software in no small part to deepen their customer relationships via digital media. Enhanced focus on such relationships is one of the consequences of GDPR among global marketers. Further, the rise of direct-to-consumer brands and e-commerce add to the incremental and durable growth that companies in marketing tech including Adobe (along with Salesforce.com and scores of other smaller players in the sector) will experience for an extended period of time.”

Adobe reported stronger total revenue and profit than it did a year ago, driven by continued “steady adoption of Creative Cloud subscriptions and services by individuals, teams and enterprises across all segments and geographies,” Narayen told analysts. That led to another strong quarter for Creative Cloud, with Creative revenue growing to $1.3 billion, he noted. That was up from $1 billion a year ago.

In Adobe’s Digital Media business overall, Adobe “achieved strong growth in both” Creative and Document Cloud, adding net new Digital Media annualized recurring revenue (ARR) of $343 million, which increased total Digital Media ARR exiting Q2 to $6.06 billion, Narayen said.

Total Adobe Q2 revenue grew to $2.2 billion from $1.8 billion. That included subscription revenue of $1.9 billion (up from $1.5 billion) and services and support revenue of $121.2 million (up from $117 million). The one decline was in product revenue, which fell to $151 million from $171.5 million. Profit grew to $663.2 million ($1.33 a share) from $374.4 million (75 cents a share).