Adobe +4.6% AH, Creative Cloud strength overshadows soft guidance


In addition to missing FQ3 estimates, Adobe (ADBE) is guiding for FQ4 revenue of $1B-$1.05B and EPS of $0.28-$0.34, below a consensus of $1.08B and $0.41.

However, the company also states it added 331K paid Creative Cloud subs in FQ3, easily more than FQ2's 221K and FQ1's 153K, and leading the total base to grow to 1.031M. Enterprise CC adoption was stronger than expected.

Creative annual recurring revenue (ARR) +53% Q/Q to $546M. Adobe expects to add "slightly more" CC subs in FQ4 than were added in FQ3, and is on track to top its FY13 Digital Media ARR target of $800M.

The shift to cloud subscriptions from up-front licenses has the effect of making Adobe's near-term revenue and earnings trail its bookings and free cash flow, as cloud revenue is recognized over the life of a subscription. Thus, thanks to the CC shift, Adobe's recognized Digital Media revenue fell 16% Y/Y to $636.7M.

Marketing Cloud (ad tech) had another strong quarter, growing 28% Y/Y (25% exc. Neolane) and reaching a $1B/year run rate. Total Digital Marketing revenue +18% to $311.7M.

CC at 5PM ET. FQ3 results, PR.

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Comments (12)
  • bdy
    , contributor
    Comments (159) | Send Message
     
    Lol. Wow misses on all fronts and it jumps ... Short sale time?
    17 Sep 2013, 04:35 PM Reply Like
  • Greg Hogue
    , contributor
    Comments (44) | Send Message
     
    Forward looking, the subscription model should be a spectacular success. I'm a user and love the all access to their very impressive products.
    17 Sep 2013, 08:47 PM Reply Like
  • bdy
    , contributor
    Comments (159) | Send Message
     
    Well if it goes up over 8-10% I'm shorting. I don't think basing investments on personal opinions of a product to be a very sound system of investing.
    17 Sep 2013, 09:01 PM Reply Like
  • Greg Hogue
    , contributor
    Comments (44) | Send Message
     
    Not just my opinion. Everyone I talked to in the graphic design business agreed that having all access and up to date products for a relatively low monthly subscription provided huge value.

     

    It's possible this could be a catalyst to continue the upward trend. I think the 8-10% is fair. Price target between 55-57. Maybe some horizontal action from there depending on macro events. If the next couple of quarters continue to show strong adoption rates on the cloud service, I wouldn't want to be short.

     

    From the earnings call transcript:

     

    "As of the end of Q3, Creative Cloud adoption grew to over 1 million paid subscriptions, and we have millions more in the pipeline who are trying out the service."

     

    "No other company has an end-to-end value proposition like ours, with Creative Cloud and Adobe Marketing Cloud addressing the entire life cycle of content. From creators to marketers and from ad agencies to media companies, we provide a compelling value proposition as companies transform their businesses to digital."
    17 Sep 2013, 09:37 PM Reply Like
  • rjc3969
    , contributor
    Comments (6) | Send Message
     
    Over $ 50,0000,000 bought in after hours trading at around $50.00 per share. Why in the world would you even think about shorting this ????
    17 Sep 2013, 09:50 PM Reply Like
  • Eric Jhonsa
    , contributor
    Comments (1276) | Send Message
     
    Check out the fourth bullet. Like other companies that depend on cloud subscriptions (Salesforce comes to mind), quarterly revenue/EPS give an incomplete picture of how Adobe's performing.

     

    The reason for this is that Adobe can only recognize subscription revenue a quarter at a time. Whereas if they sold a traditional software license, everything would be recognized upfront.

     

    Before, Adobe might sell a perpetual Creative Suite license for $1,300, and recognize it all immediately. After which they might not sell another license to that user for a few years. Now, they might collect $600/year for a Creative Cloud subscription, and only recognize $150/quarter.

     

    That transition affects Adobe's near-term revenue and earnings, but over the long run, the payoff should be similar, and maybe better. The market realizes this, which is why it's focusing on the CC subscriber growth rather than the earnings miss and guidance.
    17 Sep 2013, 10:10 PM Reply Like
  • rjc3969
    , contributor
    Comments (6) | Send Message
     
    They knocked it out of the park and over the parking lot ! This will be at 60 in a week or so.
    18 Sep 2013, 12:24 AM Reply Like
  • bdy
    , contributor
    Comments (159) | Send Message
     
    bought 55 put while adobe is up 3.30... trading it small and quick.. could be completely wrong but well see how it pans out
    18 Sep 2013, 09:36 AM Reply Like
  • bdy
    , contributor
    Comments (159) | Send Message
     
    Fair enough. It does seem like a good business model. But, if it was the end all solution to revenue they wouldn't be lowering guidance. I'm still shorting it at a 10% move :)
    17 Sep 2013, 09:49 PM Reply Like
  • rjc3969
    , contributor
    Comments (6) | Send Message
     
    They had a record $734 million in deferred revenue for the quarter. This gives you a very good idea of what to expect in the future. These are sales that they've been paid for and haven't even counted.
    18 Sep 2013, 12:18 AM Reply Like
  • boo2252
    , contributor
    Comments (34) | Send Message
     
    Creative Cloud strength ? just knew they were going to spin something to prop it up.
    17 Sep 2013, 09:56 PM Reply Like
  • rjc3969
    , contributor
    Comments (6) | Send Message
     
    Haha...... Look at what they are doing. This will be the next Netflix , google, and apple all rolled into one. Answer your own question. How could it miss on all fronts and jump 5 percent in about 30 minutes ? Maybe lots of smart money knows something that you don't !
    18 Sep 2013, 05:32 AM Reply Like
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