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Adobe and Slack report buoyant revenues, but is that a COVID-19 iceberg ahead?

Uneasy Broadcom withdraws annual guidance

Adobe and Slack reported quarterly revenues last night, but the former's earnings suffered at the sticky hands of COVID-19 while the latter pondered the impact of the virus.

For Adobe, all seemed initially relatively rosy. Quarterly revenues (PDF) hit a record $3.09bn, up 19 per cent year-on-year. However, expense charges related to event cancellations, such as the Adobe Summit, hit both GAAP and non-GAAP earnings per share by $0.07 in the quarter.

There was 22 per cent year-on-year growth for Digital Media, which hit $2.17bn. Creative revenue grew to $1.82bn and Document Cloud hit $351m. Something to ponder as you proudly affix that sticker to the lid of your MacBook.

There are, however, clouds on the horizon. The company's stock, along with that of many firms in the industry, has taken a pummelling in recent weeks and the company has guesstimated the impact of the COVID-19 situation on what might happen next quarter. Revenue for the second quarter of fiscal 2020 is predicted to hover around $3.175bn as the company warned that uncertainty would see companies deferring spend. After all, what is the point of spanking cash on marketing if there is nobody out and about to buy stuff?

The main impact of the virus in Q1 has, according to CFO John Murphy, been some slippage in deals and that Summit, of course. Q2 could well be a different story, thanks in part to "consumers reducing spending in countries more adversely impacted by the COVID-19 situation."

Broader impact

Meanwhile, Broadcom has signposted signs of trouble in its semiconductor business, which slumped 4 per cent to $4.2bn in its filing for Q1 2020. The firm's overall net revenue was up slightly, growing 1 per cent year-over-year, but the company's moves to withdraw its annual guidance made investors uneasy this morning (poor souls).

The semiconductor sluggishness isn't much of a surprise, rather something of an ongoing tale of woe for the company, which has dogged it for the past year. As a supplier to Huawei, Broadcom is exposed to the Trump Administration's entity list prohibition, which prevents it from doing business with the embattled Chinese tech giant.

CEO Hock Tan said in an earnings call with analysts yesterday that the firm was hopeful for a recovery in 2020, but those aspirations had been dashed by the COVID-19 epidemic, which has stymied worldwide economic activity — particularly in China.

"There is no doubt COVID-19 has created a high level of uncertainty, which we can't help but think is going to have an impact on our semiconductor business, in particular in the second half of the fiscal year," said Tan.

"We believe it is only prudent that we withdraw our annual guidance until such time that visibility returns to pre-COVID-19 levels," he added.

Cutting some Slack

Collaboration platform Slack, fresh from suffering "issues" while a sudden increase in home working stretches its servers, also reported buoyant figures, with quarterly revenue up 49 per cent year-on-year to $181.9m and revenues for the whole of fiscal 2020 standing at $630.4m, up 57 per cent.

GAAP operating loss, however, continued to grow. For the quarter it stood at $91.2m, or around 50.1 per cent of the total revenue. For the same period last year it was $43.4m, or 35.6 per cent of the total revenue. Although the sandal-wearing platform beat analyst expectations, its shares took a beating despite perking up earlier in the month.

The company expects those losses to narrow slightly in the next quarter while revenues remain relatively flat in the range of $185m-$189m. Like Adobe, it has factored in the estimated impact of COVID-19, but CFO Allen Shim warned of potentially choppy waters ahead due to uncertainty.

Still, there was some good news to be had. "On the positive front," he said in a call with investors, "we are seeing customers begin to work remotely and many are looking to Slack to help manage this."

He added: "Over the last week we have observed a significant spike in creative teams, which typically start out as free."

Free, sadly, won't pay the bills at Slack. ®

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