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Adobe’s Creative Cloud Subscribers Grow at Rapid Pace, Q2 Earnings Beat Estimate (ADBE)

Adobe Systems Inc. (NASDAQ: ADBE) reported late on Tuesday that its fiscal second-quarter income slumped 66% as the Company’s transition towards subscription based revenue model for its flagship products away from licensing and packaged software sales- increased marketing expenses while revenue also fell.

As the software developer accelerates its transition towards subscription based revenue model, revenue is bound to fall as fees are now collected on monthly basis as opposed to upfront onetime payment.

However, shares rallied in afterhours trading as adjusted earnings beat analysts estimate while revenue was in-line with expectation. For the current quarter, the maker of popular software such as Photoshop and Acrobat expects adjusted earnings to be in the range of 29 to 35 cents while analysts’ consensus estimate is for 35 cents a share.

In the recently concluded quarter, Adobe added 18,000 subscribers each week, which suggests that professionals prefer regularly updated creative could software rather than buying a onetime package. The pace of subscription growth was 44% faster in the fiscal second quarter over the preceding quarter, Adobe said.

Expenses increased because first-time users are offered free trial period; however, the Company’s new strategy has been fairly successful. Adobe has converted 700,000 newcomers in to subscribers with most signing annual contracts. In the recently concluded quarter, Adobe added 221,000 Creative Cloud subscribers.

Commenting over healthy growth in the subscription base, Shantanu Narayen, CEO at Adobe said to analysts in a conference call, results “demonstrate continued execution and momentum across our digital media and digital marketing businesses.”

For the fiscal second quarter, the San Jose CA based Company reported net income of $76.5 million or 15 cents a share compared to a profit of $223.9 million or 45 cents a share, in the same quarter of last year.

Stripping out onetime items, adjusted or non-GAAP earnings stood at 36 cents a share.

Revenue contracted 10% to $1.01 billion.

Analysts polled by Thomson Reuters were expecting earnings of 33 cents a share on revenue of $1.01 billion.


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