Adobe (ADBE, Financial) is set to announce its fourth-quarter earnings for the fiscal year ended November on December 11. Analysts and investors worldwide are speculating on whether the tech company would be able to keep its growth at a steady level as portrayed in the third quarter. While the company delivered non-GAAP earnings of $0.28 per share which exceeded the guidance and expectations for Q3, the revenue for the third quarter fell short by just $10 million below consensus and stood at $1.005 billion. In the third quarter there were increases in the subscription count with respect to the Cloud business that continued to drive the top and bottom line of the company. Let’s dig deeper and find out what analysts are expecting from the final quarter results and what could be the key drivers for the Q4 earnings.
What the company announced during the third quarter earnings call
During the earnings call for the third quarter, Abode provided the guidance for revenues of $1.025 billion to $1.075 billion for the fourth quarter of fiscal 2014. It also indicated that EPS would be in the range of $0.05-$0.11, and non-GAAP EPS would be between $0.26-$0.32 a share for the final quarter.
Furthermore, Adobe expects revenues from the digital marketing cloud to grow by a 25% rate for the 2014 to 2016 period. However, the management does also expect a sales decline in the LiveCycle and Connect business, and the print business to remain flat in the fiscal year.
Creative Cloud services will show brisk growth
The Creative Cloud business is the biggest operating segment for Adobe comprising more than 59% of its value. Analysts are expecting the company to report revenue of about $1.35 billion for this product family, which is roughly double of the level achieved in the previous fiscal year. In the past three quarters, the cloud business has gained traction in the market with companies increasingly adopting the services to drive collaborative development efforts. The major reason for this has been new additions to its Creative Cloud offering as the company added new features to it. Due to added features, in Q3, the company saw growth in customer count by around 500,000 as new subscriptions poured in during the quarter and 96% of the contracts signed were annual contracts.
As the company expected to have nearly 3.3 million paid creative Cloud individual and team subscriptions by the end of fiscal 2014, the new subscription count in the fourth quarter could make a huge difference as it will convey the final dictum of whether the company was able to achieve its stated target with respect to the Cloud line of business. The company has reported over 2.81 paid subscribers for the Creative Cloud services at the end of the third quarter. If the growth rate remains phenomenal as witnessed in the past few quarters, the company might be well under way to add 3.3 million subscribers in 2014. But the actuals on December 11 will aid in getting to the real picture.
Marketing Cloud to drive digital marketing revenue
The cloud marketing business is the second-largest segment for Adobe contributing to around 21% of its value. While the digital marketing platform was developed to address the needs in digital marketing, it has recently been extended to mobile marketers by Adobe. This platform provides a cost effective digital marketing solution for companies that can manage marketing campaigns across different channels and devices. The company aims to improve its revenue from Cloud-based marketing solutions by expanding into new geographies and verticals where it has a strong presence. In fact, this quarter, this line of business might see a boost in revenue as the company has introduced a new vertical to marketing Cloud business by advocating its growth through mobile marketers. Moreover, several big data analytics companies, mobility and social media industries are benefited through this existing platform of Adobe and such a framework works well in generating the extra bucks in the revenue bracket.
To conclude
Analysts are all positive on the final quarter results of Adobe as the tech company has fetched good returns in the past quarters mainly from its cloud mode of business. But the reality stands yet to strike two days later when the actual results would be out and only then could they be compared with the estimates as per analysts’ expectations. Let’s stay tuned to find out if the cloud business lines continue to exhibit the uptrend in growth, and thus become testimony to a solid quarter result for Adobe.
