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Adobe's New Pricing Strategy Could Make Their Shares A Bargain

Jun. 19, 2013 7:30 AM ET
Philip Davis profile picture
Philip Davis's Blog
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By Jackie Davis

Adobe has come up with a new plan for their Photoshop program's prices. The company is sending out a survey to customers asking whether or not they'd be interested in paying $30/month for Creative Cloud, or $10/month for the Photoshop application for 3 years, after which they would get a permanent copy of Creative Suite 6.

The prices are much more aggressive than $50/month and the $20/month Adobe currently charges, even allowing for some of the discounts available. The regular creative suite cost is $699 and if you chose to get the deal of $10/month for the Photoshop application you'll be receiving 48% off. Personally, I believe that is an amazing deal.

Yahoo just bought Tumblr. I use Tumblr a lot myself and they have 108M subscribers World-wide. You often see Photoshop 'edits' on the site. Edits are usually done on Adobe Photoshop because it has much better options than the numerous free editors people can work with and the paid version of Photoshop is even better - the best photo software there is (in my opinion). Tumblr and Photoshop have one thing in common: convenient user options. On Tumblr you can make the page your own with many different features and layouts and the same goes for Photoshop. Tumblr would be so much more fun to be on if more people like me (6th grade student) can afford Photoshop and will be able to show off their creative skills on Tumblr.

Teachers like to use it too and both teach and make presentations using Creative Suite. Our school has SmartBoards in every class and all the teachers need applications like this one - as do students. There are 6.2 Million teachers in America and and about 55M students in the US alone and trial (free) versions of Adobe have been downloaded 100M times so the company's idea of lowering prices to get more people to use the product makes a lot of sense.

The company just announced earnings this evening and they are on track to reach goal of 1.25M Creative Cloud subs by end of FY13 with 93% of CC subs on annual (rather than monthly) plans. At $50/month, 1.25M subscriptions is $62.5M or $750M a year! Last year Adobe made $832M so a subscription program like this will make a big difference for the company.

The army of people who would be interested in getting the ability to use the program for Tumblr and other photo applications would make this stock a buy!

(Phil's note) The stock has shot up 3% after hours on a strong report but, as Jackie notes, it's still a great long-term play and certainly it's worthwhile to sell 2015 $37 puts for $2.50 (estimated) for a net entry way down at $34.50, over $10 (15%) below the rising price. A more aggressive way to play ADBE long-term would be adding the 2015 $40/47 bull call spread at $4. Combine the two and you are in the spread at net $1.50 with a $5.50 potential gain at $47 and still, the worst case is you have ADBE put to you at net $38.50.

This is Jackie's first article to begin her summer internship at PSW - feedback will be appreciated!

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ADBE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Jackie Davis is the daughter of Philstockworld's Phil Davis and is learning the art of trading (and writing about trading) from her Dad - as he did from his Grandpa Max back in the days before computers, or color.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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