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Why Adobe Shares Jumped Nearly 13%

Shares of Adobe Systems  (NASDAQ: ADBE  ) closed out the week with healthy gains of nearly 13% after reporting earnings. Even though guidance for the current quarter came in slightly shy of Street forecasts, investors were still pleased nonetheless. The transition to a subscription model is beating expectations, with Adobe gaining over 400,000 Creative Cloud subscribers sequentially to end the quarter with more than 1.4 million subscribers.

Many software companies have been shifting toward subscription models; even Microsoft is doing likewise with Office 365. Subscription sales offer better visibility for the business, while generating recurring revenue. There was some early user backlash from Adobe's decision last year, as some creative professionals didn't want to pay every month. Adobe has shown that its transition is moving along quite nicely, though. In fact, it could even gain new customers since the upfront costs are much lower. A year ago, subscription revenue was just 17% of sales, but that figure has now risen to more than a third of total revenue.

In this segment of Tech Teardown, Erin Kennedy discusses Adobe's great quarter with Evan Niu, CFA, our tech and telecom bureau chief.

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  • Report this Comment On December 15, 2013, at 3:34 PM, EquityBull wrote:

    Profits were down a whopping 71%. I'd say the market got the price action way wrong. Also "Creative Cloud" is not any kind of Cloud play. They merely charge monthly for a license instead of a single one time fee license. The software itself is still downloaded and run on the local desktop same as it has been for the last decade.

    Right now many of the subs are in at intro prices. 30/month. soon to convert at 50/month. I think you will see attrition. I myself cancelled or tried to cancel but adobe gave me a free month. Next month I will try to cancel again and see if they lower the price, give me a free month or let me walk. Wonder how many others will walk at the non promotional pricing? $600/year versus $360 per year promotional we were paying.

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9/29/2016 9:51 AM
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