Adobe Profit Tops Estimates on Growth in Cloud Subscribers

Tuesday, 18 Jun 2013 05:28 PM

 

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Adobe Systems Inc., the largest maker of graphic-design software, reported fiscal second-quarter profit that exceeded analysts’ estimates as subscribers signed up for cloud-computing services at a faster clip.

Profit excluding some items for the period through May was 36 cents a share, San Jose, California-based Adobe said in a statement Tuesday. That beat the average 34-cent estimate of analysts compiled by Bloomberg. Sales were $1.01 billion, matching the average projection.

Chief Executive Officer Shantanu Narayen is in the middle of a drive to sell more of Adobe’s design software as a subscription service delivered via the Web, reducing the company’s reliance on programs for the declining personal-computer market. The 700,000 users of Adobe’s Creative Cloud software – which includes online versions of its popular Photoshop, Illustrator and Dreamweaver tools -– is better than a prediction by Brendan Barnicle, an analyst at Pacific Crest Securities LLC in Portland, Oregon.

“That’s the best indicator of what the future revenue model’s going to look like and how far we are along in the transition,” said Barnicle, who has a sector perform rating on Adobe. Amassing more than 600,000 Creative Cloud subscribers a year after the product’s debut is “pretty encouraging” and puts the Adobe well on its way to reaching its goal of 1.25 million subscribers by the end of its fiscal year in November, he said.

Recurring Revenue

For the current fiscal third quarter, Adobe is forecasting sales of $975 million to $1.03 billion and earnings of 29 cents to 35 cents a share. Analysts on average are projecting profit of 35 cents on $1.01 billion in revenue.

Shares of Adobe rose as much as 5.2 percent in late trading after declining less than 1 percent to $43.36 at the close in New York, leaving the stock up 15 percent this year.

“The benefits of going to a recurring revenue model are priced in right now,” said Josh Olson, an analyst at Edward Jones & Co. in Des Peres, Missouri. “The market’s given them a lot of credit for this transition,” said Olson, who has a hold rating on the stock.

Adobe is throwing its weight behind its Creative Cloud software for professional print, Web and video designers, and digital-marketing tools for advertisers, which now account for about a quarter of sales. The company said in May it would focus on developing and selling the Creative Cloud and won’t release new editions of its desktop Creative Suite beyond the current version 6 of the software.

Cloud Software

The transition to delivering software and tools over the Internet are aimed at smoothing out sales growth by relying less on product releases every two years. That’s sapping revenue as customers sign up for subscriptions that cost $50 a month, instead of paying for packaged applications that can cost hundreds or thousands of dollars upfront.

Second-quarter sales declined 10 percent, and net income declined 66 percent to $76.5 million, Adobe said.

The company has said that 12.8 million people are using its desktop creative products -- 8.4 million of them on suites that bundle multiple programs, and 4.4 million using individual tools. While Adobe has said it expects 4 million subscribers for the service by the end of 2015, there’s a potential market for 8 million creative professionals, according to the company.

© Copyright 2014 Bloomberg News. All rights reserved.

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