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Adobe’s Cloud Subscription Is a Success

Posted on Wednesday, Sep 11th 2013

Earlier this year, digital publishing solutions provider, Adobe (Nasdaq:ADBE) announced plans to shift its revenue model to a subscriptions-based one. It planned to gradually shut down support and sales of perpetual license products and instead get users to subscribe to them by charging an annual or monthly fee. The basic subscription costs $19.99 a month, and the entire Adobe Creative Cloud bundle is available at $49.99 a month. But not all customers were pleased with the move as it meant that they would have to shell out more per month instead of the one-time license fee paid earlier. But in the recently ended quarter results, it appears that Adobe has managed to suppress all doubts as its performance exceeded market expectations.

Adobe’s Financials

Adobe’s Q2 revenues grew 0.3% over the quarter and fell 10% over the year to $1.011 billion, in line with market projections. During the quarter, it added 221,000 paid subscribers to the cloud-based subscription service, thus ending the quarter with 700,000 paying subscribers.EPS of $0.24 was also ahead of market’s projected earnings of $0.21 for the quarter.

By segment, revenues from Digital Media Solutions fell 2.6% over the quarter to $670.0 million. Revenues from Digital Marketing solutions grew 17% over the year to $229.6 million.

For the current quarter, Adobe projects revenues of $0.975 billion-$1.025 billion, with non-GAAP EPS of $0.29–$0.35. The market was looking for EPS of $0.22.

Adobe’s Digital Marketing Expansion

Meanwhile Adobe is expanding its marketing offerings by acquiring digital-marketing solutions provider, Neolane Inc, for an estimated $600 million. Paris-based Neolane Inc. was founded in 2001 and is a privately held organization. It is known for its marketing automation and cross-channel campaign management software and services that help B2B and B2C marketers. Its solutions enable customers to offer personalized campaigns through direct mail and digital contact, including e-mail, SMS and MMS. Its customer list includes names like Accor Hotels, Alcatel-Lucent, and AXA, to name a few. Adobe plans to leverage Neolane’s capabilities to add to its own marketing cloud offerings. Through the acquisition, Adobe will be able to improve its social media-tracking and analysis tools.

In addition, Adobe is also increasing international presence for its digital marketing solutions. Earlier this year, it announced plans to release Adobe Social 3.0, a social marketing offering, in Singapore to target the Asian market. Adobe Social uses historic data to predict social reactions to social marketing strategies. It is expected to help marketers determine and improve ROI on social campaigns.

Earlier this week, Adobe also announced the launch of Adobe Generator, a technology that streamlines web production and mobile design workflows for Creative Cloud members. The service delivers images from Photoshop directly into Edge Reflow in real time so that users do not have to spend time extracting, cropping, sizing, and exporting images.

The market is pleased with Adobe’s moves. The stock is trading at $48.02 with a market capitalization of $24.12 billion. It touched a 52-week high of $48.63 in July 2013.


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