Adobe finds silver lining as cloud subscriptions soar

sincity · March 19, 2014

Adobe made a bold move to a subscription model a few years ago and it appears to be paying off.

In the company's current quarter forecast, Adobe said it had added 405,000 paid users for its Creative Cloud suite, which includes Photoshop, Illustrator and Flash software, taking its total user base to 1.84 million as of February 28.

Chief Executive Shantanu Narayen said that the company was making good progress migrating individual, team and enterprise customers to Creative Cloud.

He said that retention and renewal rates after promotions expire continue to track ahead of our internal projections," said on a conference call with analysts.

The box is history

Adobe said it would soon phase out the traditional box license versions of its Creative Suite 6 and offer the software only on a web-based subscription model.

Subscription models are risky because they bring in less money upfront, but they usually ensure more predictable cash in the long term.

Revenue from the company's digital marketing software unit rose 17 percent in the first quarter as revenue from Adobe Marketing Cloud software rose by about a quarter.

Adobe said ARR from Creative Cloud rose to $987 million in the quarter from $237 million a year earlier.

The company said this was the first time that it received more than half of its total revenue from recurring sources such as Creative Cloud subscriptions and digital marketing software.

Adobe forecast revenue of $1 billion-$1.05 billion for the second quarter ending May 31 this is a more than Wall Street was predicting. On average analysts predicted a revenue of $990.4 million.

Adobe said it expected to meet or exceed its 2014 earnings and revenue forecast. Net income fell to $47 million in the first quarter from $65.1 million, or 13 cents per share, a year earlier.