Tags: Adobe | earnings | software | cloud

Adobe's Quarterly Sales Miss Estimates Amid Shift to Cloud

Wednesday, 17 September 2014 11:02 AM

Adobe Systems Inc. reported fiscal third-quarter revenue that missed some analysts’ estimates, reflecting the software maker’s push to move customers to cloud-based versions of its design and marketing programs.

Sales in the period ended Aug. 29 were $1.01 billion, and profit before certain items was 28 cents a share, Adobe said Tuesday. Analysts on average estimated revenue of $1.02 billion and profit of 26 cents. Creative Cloud Web software gained 502,000 customers, less than the average projection of three analysts for 503,000 additions, according to data compiled by Bloomberg.

The company’s forecast for fourth-quarter sales and profit also fell short of some analysts’ predictions. Adobe has been trying to persuade customers to buy online subscriptions for its design software, seeking to make sales more predictable by replacing periodic one-time purchases. The disappointing revenue and projection is a setback for Chief Executive Officer Shantanu Narayen, who is counting on the cloud model to steady growth after sales declined in 2013.

“It’s not an easy change to make,” said Jay Vleeschhouwer, an analyst at Griffin Securities. “The revenues per customer will go up over time as you’ve completed the transition to the model, but in the meantime you do have the challenge of having to forgo revenue and therefore earnings.” Vleeschhouwer recommends buying Adobe stock.

Fourth Quarter

Sales in the fourth quarter, which ends in November, will be $1.03 billion to $1.08 billion, and profit will be 26 cents to 32 cents a share, the company said on a conference call Tuesday. That compared with analysts’ average estimates for revenue of $1.09 billion and per-share profit of 31 cents, according to data compiled by Bloomberg.

Adobe fell 3 percent to $68.60 at 9:43 a.m. in New York. The shares had risen 18 percent this year before today, compared with an 8.1 percent gain in the Standard & Poor’s 500 Index.

Total paid Creative Cloud subscriptions reached 2.81 million in the third quarter, the company said. Adobe had forecast it would add 1 million new subscribers to its Creative Cloud product, which includes versions of Photoshop and Illustrator, in the second half of the current fiscal year. Yesterday, the company said it expects to slightly exceed that projection.

Third-quarter net income fell to $44.7 million, or 9 cents a share, from $83 million, or 16 cents, a year earlier, Adobe said.

Marketing Cloud

Adobe said one reason revenue failed to reach the high end of its earlier forecast was a faster transition to subscription buying among customers of its Marketing Cloud product. That shifted about $60 million of revenue that would have been recognized this fiscal year to term-based contracts, Adobe Chief Financial Officer Mark Garrett said on the call.

“From an Adobe perspective, we get the stacking effect of all of these subscribers where they’re paying us all the time as opposed to skipping versions and we get a large recurring revenue stream, that’s very important,” Garrett said in an interview. “It becomes a high-growth business that’s much more predictable as well.”

The San Jose, California-based company’s products are used for graphic design and for building websites and developing mobile applications. Profit has been curbed as Adobe shifts from selling desktop versions of the software, priced at as much as $2,600, to subscriptions for Creative Cloud software that cost $50 a month.

The company’s cloud-based model “obligates it to be on a more rapid product-development schedule,” Vleeschhouwer said. “If you manage it well, and I expect this from Adobe, you can get more revenue per customer per year just by nature of how the product works.”

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Adobe Systems Inc. reported fiscal third-quarter revenue that missed some analysts' estimates, reflecting the software maker's push to move customers to cloud-based versions of its design and marketing programs.
Adobe, earnings, software, cloud
Wednesday, 17 September 2014 11:02 AM
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