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Adobe reports robust Q4, just beats Wall Street estimates

updated 12:11 am EST, Fri December 14, 2012

Creative Cloud up to 326,000 subscribers

Software maker 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.

by MacNN Staff



  1. kerryb

    Fresh-Faced Recruit

    Joined: 08-05-01

    I was hoping Adobe's Cloud and subscription strategy would fail. As a non-professional photographer and small business owner I have purchased Photoshop, Illustrator and (Golive) updates starting in the mid 1990's. I find the subscription plan to be too expensive for the same product compare to a simple purchase every other update. I looked at Adobe's Muse this week to see if my company's website could use it but $15 per month meant I would be spending $360 over a 2 year period for a software that is nice but not completely there.

  1. Inkling

    Senior User

    Joined: 07-25-06

    Kerryb is right. Subscription is great for some but not for everyone. It certainly makes no sense for me, since 99% of my Adobe product use is InDesign, with only an occasional dip into an older version of Photoshop. For that workflow, full-featured subscriptions make no sense. I worry that, if servicing subscriptions becomes Adobe's chief source of income, those like me who own rather than rent may find ourselves getting fewer bug fixes and fewer new features. between major upgrades. We'll become second-class citizens.

    One illustration of a much needed, on-the-fly tweak is the ability to add Apple's 'pop-up' footnotes to epub exports rather than the clumsy, at-the-end-and-come-back ones that are the epub standard. That can't be that hard to do, since it's just a different HTML-type coding. And that feature is likely to prove handy even for less-than-scholarly titles. The one I need it for is a Tolkien book.

  1. Charles Martin

    MacNN Editor

    Joined: 08-04-01

    To you both: there's no evidence that people who don't subscribe to CC will be treated like second-class citizens. Adobe has no plans to stop making new boxed versions of software any more than Microsoft is going to abandon Office in favour of a mandatory Office365.

    I suppose that CC subscribers will be likely to get new features ahead of boxed software buyers, but the boxed software buyers (like myself and yourselves) don't tend to buy every new version or buy on the first day of a new version, so that was going to be happening anyway.

    I tend to skip alternate releases like a lot of people, maybe even longer when a release works really well. I plan on continuing this practice.

    I do like the "drop in" rate to have access to a particular app for a month. For example I don't own Fireworks (got the print bundle not the web bundle), but it's possible I might have a job to do that would benefit from it. I can effectively "rent" the software for $50 or whatever it is for a month, and dispense with it when the project's over. That's not bad.

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