Adobe Systems misses by $0.02, misses on revenues, Creative Cloud strength overshadows soft guidance -9/1/2013

Adobe Systems misses by $0.02, misses on revenues

• Adobe Systems (ADBE): FQ3 EPS of $0.32 misses by $0.02.
• Revenue of $995.1M misses by $14.9

Adobe +4.6% AH, Creative Cloud strength overshadows soft guidance

• In addition to missing FQ3 estimates, Adobe (ADBE) is guiding for FQ4 revenue of $1B-$1.05B and EPS of $0.28-$0.34, below a consensus of $1.08B and $0.41.
• However, the company also states it added 331K paid Creative Cloud subs in FQ3, easily more than FQ2's 221K and FQ1's 153K, and leading the total base to grow to 1.031M. Enterprise CC adoption was stronger than expected.
• Creative annual recurring revenue (ARR) +53% Q/Q to $546M. Adobe expects to add "slightly more" CC subs in FQ4 than were added in FQ3, and is on track to top its FY13 Digital Media ARR target of $800M.
• The shift to cloud subscriptions from up-front licenses has the effect of making Adobe's near-term revenue and earnings trail its bookings and free cash flow, as cloud revenue is recognized over the life of a subscription. Thus, thanks to the CC shift, Adobe's recognized Digital Media revenue fell 16% Y/Y to $636.7M.
• Marketing Cloud (ad tech) had another strong quarter, growing 28% Y/Y (25% exc. Neolane) and reaching a $1B/year run rate. Total Digital Marketing revenue +18% to $311.7M.

 

More on Adobe: Buybacks, deferred revenue, hardware, Acrobat

• Adobe (ADBE) spent $326M in FQ3 to repurchase ~7M shares (1.4% of outstanding shares).
• Deferred revenue totaled $734M at the end of FQ3, +6% Q/Q and reversing FQ2's 1% drop.
• Adobe declares "the overwhelming majority" of its customers are shifting from perpetual to term-based licenses, validating market acceptance of Creative Cloud.
• Document Services revenue (a portion of Digital Media revenue) fell 1.5% Y/Y to $182.7M thanks to shift towards Acrobat subscriptions. Document Services ARR rose 30% Q/Q to $109M, with total subscribers topping 1.3M after crossing 1M in FQ2.
• Print/publishing revenue was soft, falling 14% Y/Y to $46.7M (5% of revenue).
• Adobe also announces Project Mighty (a Bluetooth-equipped tablet stylus) and Project Napoleon (a digital ruler/guide) will be released in 1H14
• R&D spend +10% Y/Y to $208.7M, sales/marketing spend +5% to $388.7M. CC/Marketing Cloud investments have much to do with the R&D growth.
• ADBE +5% AH

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