Adobe Systems (ADBE 2.01%) will release its quarterly report on Tuesday, and if analysts are correct, the report could look ugly on its face. But even with Adobe earnings likely to fall dramatically, investors have been bullish about the company's core strategy going forward.

Adobe is the company behind the popular Photoshop picture-editing program as well as the free PDF-viewer Adobe Reader. But the company also makes a much wider range of more sophisticated software products, ranging from creative products for page and website design to analytic marketing tools for Internet, social-media, and targeted advertising efforts. Let's take an early look at what's been happening with Adobe Systems over the past quarter and what we're likely to see in its report.

Stats on Adobe Systems

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$1.01 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How will Adobe earnings read this quarter?
Analysts have had narrowly mixed views on Adobe earnings in recent months, cutting a penny per share from their August estimates but adding a penny for the full fiscal year. The stock has done well, though, climbing about 12% since mid-June.

A good part of Adobe's share-price gains came after the company's May-quarter report. Even though the company's profits fell by two-thirds on a 10% decline in revenue, investors sent the stock higher. That's because those drops were expected as a result of Adobe's moving from selling its software products outright to using a cloud-based subscription model, which should result in lower upfront revenue but greater total sales in the long run based on recurring revenue streams from subscription payments.

To attract continuing subscriptions, Adobe will have to keep its software products up to date, and the company has made substantial efforts to do so. Earlier this month, the company said it would upgrade the video tools in its Creative Cloud product to help video professionals create more effective and high-quality multimedia presentations. On the marketing side of its business, an announced new interface for its Adobe Target suite will help marketing professionals create and modify testing and targeting parameters more simply. Adobe's acquisition of Neolane in late June for $600 million will also add to its marketing offerings with its experience in cross-channel marketing campaign management.

One issue that continues to get negative attention for Adobe is its Flash software. Facebook (META -1.38%) said last month that it would stop using the platform in its advertising, moving toward HTML5-based open-standards alternatives. The move doesn't make a major impression on Adobe financially, but it still has the risk of affecting its reputation.

The interesting question is how Adobe's model will fare against its competitors. Google (GOOGL 1.89%) provides some free marketing-systems products, but in exchange, it keeps hold of the resulting data. Meanwhile, (CRM 1.35%) and Oracle (ORCL -0.99%) have used their respective cloud-based software prowess to make entries into the marketing-automation industry. But salesforce and Oracle have a big competitive disadvantage, because creative marketing professionals are already familiar with Adobe's creative products and therefore have confidence in Adobe's marketing suite.

In the Adobe earnings report, watch to see how well the company does in attracting more subscribers. The key to its success will be persuading existing customers to upgrade from previously purchased software, and if Adobe can do so, it should be able to restore its sagging sales and profits over time.

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