Adobe Systems Inc. (ADBE:US) added online subscribers at a faster-than-projected clip in the fiscal first quarter, as the company attempts to return to growth by selling Internet subscriptions for applications such as Photoshop.
The software maker added 405,000 customers for its Creative Cloud Web software, bringing the total to 1.84 million and exceeding analysts’ estimates. Sales dipped less than 1 percent to $1 billion and profit excluding certain items declined to 30 cents a share for the period ended Feb. 28, the company said ysterday. That topped analysts’ average estimate of 25 cents a share on sales of $973.1 million.
Like Microsoft Corp., Adobe is adjusting its business to attract customers who increasingly do their computing online and on mobile devices. To reignite growth, Chief Executive Officer Shantanu Narayen is shifting the largest maker of graphic-design programs away from selling desktop software to Internet sales of applications such as Photoshop, Illustrator and Dreamweaver.
“Adobe has reinvented itself,” said Kirk Adams, an analyst at Wedge Partners Corp. in Greenwood Village, Colorado, who doesn’t have a rating for the stock. “This is nothing short of phenomenal.”
For the current second quarter, Adobe forecast profit excluding some items of 26 cents to 32 cents a share on sales of $1 billion to $1.05 billion, the company said in a statement yesterday. That compares with analysts (ADBE:US)’ average projection for profit of 27 cents on sales of $993 million.
The San Jose, California-based company’s products are used by marketing departments for graphic design, as well as by software developers building websites and mobile applications. Profit has suffered as Adobe shifts from selling versions of the desktop software priced as much as $2,600 to subscriptions for its Creative Cloud software that cost $50 a month. The company has predicted it will have 4 million subscribers by the end of 2015.
“It’s moving from a purchase model to a rental model -- subscriptions are essentially a rental,” said Jay Vleeschhouwer, an analyst at Griffin Securities, who has a buy rating on Adobe stock. He said the shift to subscriptions will make Adobe’s business more predictable because sales won’t depend on customers periodically upgrading to new versions of its software.
Including the latest results, Adobe’s sales (ADBE:US) have fallen five consecutive quarters, with analysts predicting revenue won’t increase until the quarter ending in August.
Shareholders have shown optimism that Adobe can make the transition to online subscriptions, with shares rising about 67 percent in the past year.
“We have an amazing pipeline of innovation that we will deliver in the coming months, as well as plans to differentiate ourselves by further integrating our Cloud businesses,” Narayen said in a statement.
The shares rose as high as $70.24 following the disclosure of its results, which were released during market hours yesterday. The stock gave up gains to advance less than 1 percent to $68.52 at the close in New York. Earnings, which are usually disclosed after the close, were made public early due to an internal error, the company said.
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