Business

Adobe revenue slows ahead of upgrades, shares fall

Revenue rose 1.7 per cent to US$1.045 billion (RM3.19 billion) in its fiscal first quarter ended March 2, slightly below the US$1.054 billion (RM3.2 billion) average forecast of analysts polled by Thomson Reuters I/B/E/S.

Sales at the digital media unit, which produces Adobe's widely used Creative Suite, fell 4 per cent from a year earlier to US$730 million (RM2.3 billion). Creative Suite includes popular design titles Photoshop, Illustrator, InDesign, Flash and Dreamweaver.

Chief Financial Officer Mark Garrett said on a conference call that Creative Suite revenue lagged the company's expectations because customers are waiting to buy two new versions set to be introduced at the end of the current quarter: Creative Suite 6 and a Web-based version of the suite that will be sold via subscription.

Analysts are increasingly concerned the Web-based subscription service, known as Creative Cloud, will hurt Adobe's financial growth over at least the short term.

"I think there are going to be some surprises along the way. These things tend to take longer and be tougher than managements expect," said JMP Securities Analyst Pat Walravens.

Adobe's sales typically surge after a Creative Suite upgrade, but analysts have said the revenue upswing might be smaller than in the past because customers who switch to the new service will not buy their software up front. Instead they will enter into subscription agreements to rent the software, making much lower initial payments. They will get extra features such as document storage at Adobe data centres and frequent updates.

Global equities Research analyst Trip Chowdhry said it could take several quarters for revenue and profit growth to return to normal after the launch of the new products.

"I think the stock goes sideways for another couple of quarters," he said.

Company executives said during an analyst conference call they intend to promote the subscription service as the superior offering. They said it could take a while to persuade a significant percentage of its corporate customers to move to the new service, but did not specify just how long that might be.

"People are going to want to see the product; understand what we can offer," Garrett said in response to one of several questions about the new service during the analyst call. "It's going to take a little bit of time."

The software maker also reported a first-quarter profit, excluding one-time items, of 57 cents per share, matching the average analyst forecast.

Adobe expects to post second-quarter revenue of US$1.090 billion to US$1.140 billion (RM3.328 billion to RM3.480 billion), compared with the average analyst forecast of US$1.1 billion (RM3.4 billion).

It forecast second-quarter profit, excluding items, of 57 to 61 cents (RM1.7 to RM1.9) per share, compared with the Street view of 60 cents (RM1.8).

Adobe shares closed at US$34.51 (RM105.35) on Nasdaq and fell 4.5 per cent to US$32.96 (RM100.63) in extended trading. — Reuters

 

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