Adobe’s slump in the “Creative Cloud” subscription worries market analysts

By | March 19, 2015
Adobe creative cloud

Adobe systems shares tumbled down in a day’s time after the company reported subscription lesser than the expected growth for its new creative cloud business and predict revenue much lesser than what the analysts’ estimated. Share value fell 4%, despite the company exceeding analysts’ expectation in the first-quarter earnings report.

Adobe creative cloud

The price resistance and the disinclination to adopt the new Cloud suite of application by not-yet-converted customers may slow the rate of adoption more, warned Morgan Stanley in a note to clients.

The company boosted its Creative Cloud subscriptions 28% to 517,000 in the fiscal first quarter, not reaching the average of 575,000 estimated by two analysts which was compiled by Bloomberg. Also, according to the average of 19 estimates, analysts expected $1.18 billion and 48 cents. But, Adobe on Tuesday projected second-quarter sales of $1.125 billion to $1.175 billion and profit, keeping out some items, of 41 cents and 47 cents a share, meaning the company did not meet the analysts’ expectation.

Adobe’s stock value dropped 3.5% to close at $76.89 Wednesday, progressing from a slump of as much as 6.2%. The San-Jose company’s shares have increased 14% in the past 12 months.

Recently, in the effort to boost up sales from subscription instead of software installed on computers, Adobe introduced cloud-based marketing and creative design tool. The declined revenue in 2013, the year when lot of transitions started, have been recovered as customers are starting to use the new way of buying software.

Norman Young, an analyst with Morningstar and stock holder, stated that people are aware that they do not need the full suite. Also he worries about the ways the company would increase the prices over time and make customers to move from the point solutions to the full suite.

To promote the products, Adobe will add more interesting services like stock photos from Fotolia, which Adobe acquired last quarter. The Chief Financial Officer Mark Garrett in an interview said the new products would serve as the route to increase revenue per user this year from that integration.

Adobe predicts 5.9 million subscribers for Creative Cloud by the end of the year. Also, the company focuses to meet the target as its expects increased subscription growth in the second quarter, said Garrett to the analysts in a conference call. “It will be a natural step up as we march towards that 5.9 million line,” he said.