Adobe Creative Cloud crosses 1 million mark, strong corporate demand expected

Adobe Systems, known for its Photoshop and Acrobat software, expects subscriber growth to top the 331,000 it added in the third quarter due to strong demand from corporate customers. Shares of the company rose more than 5 percent in trading after the bell.

Adobe said subscribers for Creative Cloud, the subscription-based version of its flagship software package, crossed the 1-million mark at the end of the third quarter. The company closed more contracts with corporate customers in the third quarter than in the first half of the year, Chief Financial Officer Mark Garrett said during a call with analysts. Adobe forecast fourth quarter below analysts' expectations after missing estimates in the preceding quarter as the shift to the subscription-based model leads to more deferred revenue.

The revenue miss in the third quarter indicates that the shift to subscription pricing model is ahead of schedule and the company is deferring more revenues, Edward Jones' technology analyst Josh Olson told Reuters. Olson said he had not expected Adobe to hit the one million subscriber mark until "somewhere in the fourth quarter".

Adobe's Creative Cloud has crossed the 1 million mark (Image credit: Reuters)

A subscription-based model brings in less money upfront as payment is spread over the entire period of use unlike traditional packaged software but typically ensure more predictable recurring revenue.

Adobe has been shifting to the web-based subscription service, Creative Cloud, from a licensing model since last year. The company forecast fourth-quarter adjusted earnings of 28 -34 cents per share on revenue of $1 billion to $1.05 billion.

Analysts on average were expecting earnings of 41 cents per share on revenue of $1.08 billion, according to Reuters. Adobe's net income fell to $83 million, or 16 cents per share, in the third quarter, from $201.4 million, or 40 cents per share, a year earlier. Excluding items, the company earned 32 cents per share. Revenue fell to $995.1 million from $1.08 billion a year earlier.

Analysts on average had expected earnings of 34 cents per share on revenue of $1.01 billion. Adobe said on Tuesday it would make a cloud-connected pen and a digital ruler for tablet devices. Shares of the company were trading at $50.85 after the bell. They had closed at $48.14 on the Nasdaq.

Reuters