Adobe’s Creative Cloud Gamble Pays Off Handsomely, Eve

If Adobe reported a drop in earnings of 66% for Q2 no one really seemed too bothered about it. The San Jose company explained the fall-off as the result of higher expenses, but the kind of expenses that were incurred over the quarter were the kind that investors don’t mind paying.

Had those expenses been related to foolhardy investments as we have seen with some big IT players over the past year, the atmosphere at Adobe after the markets’ closing bell might have been a little less jovial.

But in this case, it was about securing Adobe’s future as a software developer and ensuring that its gamble on the Creative Cloud subscription-based model paid off. The level of subscriptions would seem to show that the move has been a success.

The  financial figures show that second-quarter sales declined 10%, while net income dropped 66% to US$ 76.5 million, Adobe said in a statement.

Creative Cloud Subscriptions

However, just before the Q2 results were announced and probably as a sweetner to counteract the impact of such poor earnings this time around, it also announced that Creative Cloud had 700,000 paid subscriptions at the end of the period.

This follows the addition of 221,000 paid Creative Cloud subscribers in the latest quarter with Adobe predicting even more subscriptions in this coming quarter.

This means that over the past quarter it has added 18,000 subscribers every week, which represents growth of 44% faster than the prior quarter.

In an interview with the Wall Street Journal Chief Financial Officer Mark Garrett said that every 1000 customers that it shifts to the Creative Cloud means US$ 500,000 in revenues.

There are currently 12 million users of Adobe software around the world at the moment, and while he doesn’t expect all 12 million to make the jump to subscription models, Adobe is looking at moving 4 million of those across by the end of 2014.

Our Q2 results reflect our leadership position in Digital Media and Digital Marketing…Creative Cloud is revolutionizing the creative process, and Adobe Marketing Cloud is quickly becoming the platform of choice for the world's leading brands, advertising agencies and media companies,” Shantanu Narayen, CEO of Adobe said of the figures in a statement.

He added that the figures suggest that the decision to discontinue perpetual licensing was the right one, while at the same time acknowledging the concern that the decision caused, and continues to cause some of its customers.

While we will still continue to offer CS6 on a perpetual basis, the feedback from our community is important, and we are evaluating additional options that will help them with the transition. Our goal is to over-deliver on customer expectations, which we believe will make the entire community ultimately embrace Creative Cloud, he said in the earnings conference call

Analysts around the Web were ecstatic about the subscription model this morning, especially as it was backed up in other areas by strong performances that should result in better earning as the end of this quarter.

Adobe Figures

In the past two years, for example, Adobe says that there have been 100 million digital downloads of content made with its Digital Publishing Suite (DPS) and that this has been driven by the growth in the tablet market with the number of customers using DPS for mobile marketing up 30% in the past six months.

With all the excitement around Creative Suite, the figures themselves are unexceptional and likely to be forgotten as investors look with relish towards the likely earnings the subscription model will make in the future.

Revenues were US$ 1.011 billion with net income of US$76.5 million. While Creative Cloud subscriptions were staggering, the Marketing Cloud revenue also grew by 25 percent to $229.6 million.