Adobe’s results these days are all about the rate of its transition to the cloud and subscription model. The good news is that it is signing up customers at a faster than anticipated pace, a trend it has been setting over previous periods (see here). There is a negative impact on revenue and profits of course and Q4 and full year results for the year to November 29 2013 show the effects.
The number of Creative Cloud users rose to 1.44m in Q4, a 22% yoy increase, generating recurring revenue of $768m. Total revenue was down 9.7% to $1.04bn. It was a squeeze, but Q4 revenue just about exceeded analyst expectations of $1.03bn. Net income dropped steeply from $222m to $65m, driven by Adobe’s decision to go all out for the cloud rather than trying to juggle two business models through a slow transition period.
For FY13 revenue was $4.06bn vs. $4.4bn, with net profit of $289.9m vs. $832.8m. FY14 revenue is expected to be flat.
As the only large provider to take such a radical cloud transition decision Adobe’s actions are to be respected but all eyes will be watching closely to see when it turns the corner and what level of profitability it can achieve. HotViews readers are aware of our reservations about achievable profit levels. As for Adobe, it has cut its profit outlook for the next three years, which is an indication of the length of the transition timeframe even when a company is committed to a complete change in the business model. Adobe has the financial resources to tough it out and while subscription revenue continues to accelerate its situation will remain painful but manageable.