Adobe reported its fiscal 2012 and fourth-quarter earnings on Tuesday, marginally beating analysts’ expectations on both earnings and revenue. In after-hours trading, the stock is up six percent to $37.66 on the news. Investors and analysts were particularly pleased to hear that the company has managed a transition to less upgrade cycle-based highs and lows by opening a software-rental and cloud-storage service, called Creative Cloud, that appears to be gaining traction with the company’s creative professional base.
Net earnings for the quarter were 44 cents per share on revenue of $1.15 billion. Non-GAAP earnings were pegged at 61 cents per share, higher than the consensus of estimates (which had been 56 cents per share on $1.1 billion). Though revenue was up only slightly from the year-ago quarter ($1.152B in 2011, $1.153B in 2012), earnings were up 22 percent over the same quarter last year. Adobe’s stock has also risen about 26 percent since last year.
The company reported that it is adding around 10,000 Creative Cloud subscriptions a week, up from around 8,000 in the previous quarter. Accordingly, Adobe has been pushing cloud services and integration in its software at its recent Create Now Live webinar, and will continue on that path at the AdobeMAX conference in San Francisco next May. It is also expected to announce the next major upgrade to the Adobe Creative Suite of graphics software, setting the company up for rising earnings in the second half of 2013.
The Creative Cloud service offers members a chance to “rent” access to locally-installed copies of Adobe’s professional line of software on either an annual or “as needed” basis instead of purchasing annual upgrades every year or two. Subscriptions run approximately $50 per month on an annual basis, or $75 per month for “drop in, drop out” use, but the fee includes use of all eligible Adobe CS6 applications along with additional services such as 20GB of cloud storage (and automatic updates, among other benefits). There is also the option of buying access to a single application for $20 per month.
The “cancel at any time” option aims to capture infrequent users and those who work mainly in one program but have an occasional need for another. Calculating the annual revenue is thus somewhat complex, but at base annual subscription rates the company’s current 326,000 subscribers should generate around $150-200 million in annualized revenue. Should the service continue adding subscribers (the annual subscription works out to be about the same price per year as buying the software outright on its regular upgrade schedule) at around the same rate as last quarter on average, Creative Cloud could become a major revenue generator for the company that is more evenly spread out and doesn’t “boom and bust” around upgrade cycles. The annualized subscription also locks in users, which assists the company with planning and implementation of new services.
For the year, Adobe achieved a total revenue of $4.4 billion, and earnings of $833 million. For 2013, analysts have predicted a slight rise in revenue to $4.47 billion, though Adobe itself is guiding lower, at an estimated $4.1 billion for next year (a GAAP EPS of 62 cents per share). The company also guided significantly lower results for next quarter, with projected revenue of $950 million to $1 billion (Wall Street had been expecting $1.07 billion) and earnings of 26 to 32 cents per share (analysts were hoping for 56 cents EPS).
In 2013, the company expects to release a major update to the Creative Suite, roll out additional services to Creative Cloud, and establish an enterprise version of Creative Cloud that includes many of the services now available in “Team” subscriptions. It has characterized its transition to cloud services as “incomplete” but proceeding smoothly. A copy of the annual and Q4 summary along with a transcript of Adobe’s prepared remarks can be found here in PDF form.
