Adobe Cloud Profits
Adobe Systems Inc. has a lot to be proud of. The biggest name in graphic design software announced their fiscal second-quarter profit this week, a profit that was higher than analysts had originally predicted, all thanks to a fast-paced rise in those signing up for cloud computing services.
After excluding certain items from the total profit for the period through May, profit was calculated at 36 cents per share according to Adobe, located in San Jose, California. That was two cents higher than analysts' projection of 34 cents a share, according to Bloomberg, the analysts compiling the data. Sales were recorded at $1.01 billion, which mirrors the average projection.
All Thanks To The Cloud
It is cloud hosting of Adobe's design tools via web subscription service that is to thank for the profit, according to CEO Shantanu Narayen. This moves the company away from the traditional software sales and into the rising cloud hosting market. There are currently 700,000 users of Adobe's Creative Cloud software, which offers online versions of Photoshop, Dreamweaver, and Illustrator. This is higher than predicted by Brendan Barnicle, analyst with Pacific Crest Securities LLC based in Portland, Oregon.
Barnicle said, “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.”
He had originally predicted 600,000 would subscribe to Creative Cloud, and he called the higher figure actually using the services “pretty encouraging.” It also puts Adobe in a great position to obtain 1.25 million subscribers, the goal they hope to reach by the end of the fiscal year in November according to Barnicle.
Adobe Cloud Profits: Third Quarter Predictions
Adobe is projecting sales of $975 million to $1.03 billion for the fiscal third quarter, as well as share values between 29 cents to 35 cents per share. Analysts predict profits of 35 cents on $1.01 billion in revenue.
The announcement led to Adobe shares rising 6 percent to $45.97. Overall, share prices rose 15 percent for the year so far in comparison with a 16 percent rise for the Standard & Poor's 500 Index.
“The benefits of going to a recurring revenue model are priced in right now,” Josh Olson, analyst with Edward Jones & Co. in Des Peres, Missouri said. “The market's given them a lot of credit for this transition.”
Moving Faster Towards The Cloud
Marketed to professional Web, print, and video designers, Adobe is giving all they have to Creative Cloud. During the quarter, Adobe saw 221,000 new subscribers which is higher than the 185,000 estimate given my Olsen. The company is also pushing digital marketing tools designed for advertisers, accounting for roughly a quarter of sales.
It was in May the company said it would put much effort into the development and sales of Creative Cloud, and also that it does not plan on releasing new versions of the desktop Creative Suite beyond the current version 6. Some users didn't like this news, saying the online subscriptions are just too expensive.
Narayen, in a conference call with analysts, discussed this issue saying their decision to cease creating desktop versions of Creative Suite “has caused concern among some customers.” Adobe plans to research “additional options that will help them with the transition,” he said.
On average, Adobe gets an average of $37 per month from Creative Cloud subscribers, and plans to continue offering promotions to entice people to switch to the online version of the applications, according to CFO Mark Garrett. The full suite Creative Cloud goes for $50 per month. In addition, Garrett said Adobe is weighing whether or not they will allow users to access files if they aren't subscribers.
“It's fair and we're listening,” Garrett said. “You'll always have people who are upset about change.”
In all, Adobe said there are 12.8 million users of its desktop applications. 8.4 million of them use suites made up of multiple programs, while 4.4 million use them individually. The company does expect 4 million subscribers to their cloud hosted applications by the end of 2015, but knows that there is the possibility for 8 million.
Do you use Adobe's Creative Cloud? Or are you one of those users that will stick with the software because of the subscription price?