Adobe sees robust earnings backed by cloud subscriptions growth

Puneet Sikka
June 19, 2014

Adobe sees robust earnings backed by cloud subscriptions growth (Part 1 of 5)

Adobe’s better-than-expected earnings are a result of a rapid increase in cloud subscriptions

On Tuesday, Adobe (ADBE) announced its Q2 2014 earnings, in which its revenues of $1.07 billion were better than analysts’ expectation of $1.03 billion and its adjusted earnings per share of $0.37 also exceeded analysts’ expectation of $0.30. The results made investors happy and Adobe’s stock was up 8% in the after-market trading hours. The results got a boost from better-than-expected adoption of its cloud products, and its flagship product Creative Cloud subscriptions increased rapidly.

Adobe now expects its cloud subscriptions to exceed its target

As the chart below shows, in Q2 2014, Adobe’s cloud subscriptions increased by 25% sequentially and more than tripled from a year ago quarter to reach 2.3 million. Adobe now expects to add approximately 1 million net new Creative Cloud subscribers in the second half of the year, making a total of 3.3 million subscriptions by year end—10% more than the 3 million target that Adobe gave earlier in the year.

The Digital Media segment contributes the most to Adobe

Adobe earns about 65% of its revenues from its Digital Media segment. This segment of Adobe is divided into two sub-segments—Creative Cloud and Document Services. Creative Cloud offerings consists of Adobe Photoshop, Adobe Illustrator, Adobe Dreamweaver, and Adobe InDesign, while the Document Services business is built around the Acrobat family of products. This segment provides solutions to content creators, web designers, and app developers, and Adobe competes with Microsoft (MSFT) and Apple (AAPL) in this segment.

Digital Marketing is the next big segment for Adobe

The Digital Marketing segment is the next big segment of Adobe and it contributes about 31% to Adobe’s revenues. The main products under this segment are Adobe Analytics, Adobe Target, Adobe Social, Adobe Media Optimizer, Adobe Experience Manager, and Adobe Campaign. This segment provides solutions to marketers and advertisers to optimize their digital advertising and marketing campaigns across multiple channels. Adobe competes with Google (GOOGL) and IBM (IBM) in this segment.

The Print & Publishing segment contributes very little to Adobe

The Print & Publishing segment contains legacy products and services such as eLearning solutions, technical document publishing, web application development, and high-end printing through Adobe PostScript and Adobe PDF printing technologies. This segment provides solutions to graphic professionals and professional publishers and contributes only 4% to Adobe’s revenues.

Continue to Part 2

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