The San Jose-based software company, Adobe Systems (ADBE, Financial), reported its first quarter earnings of the fiscal year 2015 on March 17, and though the number mix was not a bad one, the stock plummeted almost 4% in the day’s after-hours trading session. The outlook provided by the management with regard to the upcoming second quarter remains timid enough to bring in negativity in its stock price. Let’s dig in further to decipher the major highlights from the first quarter’s report card of Adobe.
The quarter results were impressive
Revenue for the quarter rose 11% to $1.11 billion, surpassing analyst estimates of $1.09 billion. Net income for the tech company rose to $84.9 million, or $0.17 a share, from $47 million, or $0.09 per share, a year ago. In fact, on a non-GAAP basis the company earned EPS of $0.44 a share, which beat the analysts’ estimate of $0.39 a share for the first quarter.
The tech company reported growth in Creative Cloud subscriptions by about 517,000 subscriptions, but unfortunately this addition was less when compared with the 573,000 net additions analysts were expecting, as per research firm StreetAccount.
In the first quarter of the fiscal year, the company reported 70% of its total revenue from recurring sources. The growth in subscriptions remained noteworthy this quarter, as in the year-ago similar quarter the same had contributed to around 52% of the overall revenue. In a statement CEO Shantanu Narayan mentioned – “Adobe Marketing Cloud and Creative Cloud continue to be growth engines for Adobe…” These have been the top-selling businesses of Adobe for the past two years and are directly linked to the subscription-based model aiding the company to make money from cloud offerings which include PhotoShop, Illiustrator and Flash software.
However, the CEO’s optimism could not stall the downward movement of the stock soon after the earnings call. This has been majorly due to the fact that the analysts’ expectations on the subscription count increase was not met by a wide margin in the first quarter, though the company management did not show any signs of worry on the same.
Outlook is decent as per company management, but below analysts’ estimates
Looking ahead, Adobe’s management is taking a cautious stand and has predicted that the earnings for the coming quarter would be in the range of $0.41-$0.47 per share on a non-GAAP basis. Sadly, it fails to impress analysts of Wall Street who have estimated earnings to be in the range of $0.43-$0.55 a share for Adobe in the second quarter.
Revenue is forecasted to be in the range of $1.13-$1.18 billion for the second quarter by the company, which just meets the analysts’ estimates of $1.18 billion at the top-end.
Hence, it can be concluded that the analysts’ predictions are over and above the top end of the sales and earnings range estimated by the company – so it might become a worrying signal for the investors.
New potential growth engine unwrapped
The company went ahead to announce the development of a new “Creative Document Cloud” offering on which the company oversees enormous opportunity for growth in the documents space; where it has hundreds of millions of Acrobat Reader and PDF users.
With this new subscription service for PDF editing software in hand, Adobe could make more revenue in the coming days from the millions of PDF users. Therefore, this new Acrobat DC could aid in earning better top line starting from the second quarter of this fiscal year. Acrobat DC would allow users to create, edit and track PDF documents online and would allow e-signing and conversion of paper documents into digital files which can then be edited.
For enticing users towards the Document Cloud which would be readily available in the coming 30 days, Adobe is offering this extra subscription for free to existing Creative Cloud subscribers as a part of their initial plan. Adobe would also offer perpetual license for Acrobat DC to win over more subscriptions in the long run.
Last word
Adobe looks focused on expanding its cloud offerings as the cloud line of business is a new technologically sound form of business being opted by several tech companies worldwide. The management knows that the subscription payment model is the best one at Adobe and all measures are being taken to keep the monthly and quarterly subscription count moving higher in the coming days for maintaining decent growth in the top and bottom lines.
