The move to subscriptions cast a shadow over Adobe last quarter (see here), it got bigger in Q3 and will still be there in Q4, providing a salutary lesson about the impact of the necessary but painful business model shift. Adobe will certainly be viewing it with mixed emotions. Q3 revenue was below analyst and at the low end of its own expectations, and earnings for Q4 are expected to decline or be flat - because customers are taking to the subscription model faster than anticipated.
Creative Cloud subscriptions saw good growth, reaching 200,000 during the quarter, which equates to c8, 000 new paid for subscriptions per week during the quarter against expectations of c5, 000. This “overachievement in subscriptions” as Adobe describes it, transitioned c$29m more perpetual revenue to Creative Cloud than expected. It shows strong demand for the product despite the pain that entails. There is more to come as so far Creative Cloud has been targeted at individual users, but team and enterprise editions are scheduled for release over the next few months. The Digital Marketing Suite is also doing well (the Adobe Social module was added this month), and achieved 40% yoy growth.
In terms of the Q3 numbers, Adobe derived net income of $201.3m (vs $195m) on revenue up 7% to $1.08bn (vs $1.01bn). Subscriptions now account for $173m of revenue ($115m in Q311), compared to product revenue of $810m and services and support revenue of $97m. The company has cut its Q4 outlook due to the fast uptake in subscriptions and is looking at revenue of $1.07bn - $1.12bn, with 125,00 new Creative Cloud subscriptions. “Overachievement” is not a bad problem to have – the revenue is coming, it will just take time to materialise.