Adobe's Pricey Omniture Purchase

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Some on Wall Street reckoned Adobe paid dearly for that growth. Shares of the company, which ended up 43¢, or 1.2%, at 35.62 on Sept. 15 in normal trading, fell more than 4% in extended trading after Adobe announced the acquisition and reported that fiscal third-quarter revenue fell 21%, to $697.5 million, even as earnings of 35¢ a share beat analysts' estimates by a penny. Adobe said buying Omniture would add to earnings, when calculated not according to generally accepted accounting principles, in fiscal 2010, which begins on Nov. 28.

Omniture's stock soared in extended trading, gaining 25% after closing up 33¢, or 1.9%, at 17.33. Adobe's cash offer of $21.50 a share is a premium of 24% above Omniture's closing price and 94% above where the stock was trading about two months ago. That represents a "considerable" win for Omniture shareholders, said Scott Kessler, an analyst at Standard & Poor's Equity Research, in a Sept. 15 research note. Kessler also raised his rating on Omniture's stock to a hold. S&P, like BusinessWeek.com, is owned by the McGraw-Hill Companies (MHP).

Adobe will use the deal to try to tack on more revenues. During the San Francisco dinner, Chief Financial Officer Mark Garrett said sales of upgrades to the company's Creative Suite 4 were "nowhere near where we thought they would be" as companies held off during the recession on buying new PCs and the associated installed software. Weak sales of design software were a big reason Adobe's sales slid during its third quarter.

Big Challenge? Google

But Adobe will need to surmount two problems as it sells Omniture's Web site analysis products to its sizable customer base. One is awareness. Although Omniture boasts some 5,000 customers, it hasn't been able to reach the most influential marketers in companies as effectively as it would like. "In many cases, we're struggling to get chief marketing officers to understand who we are," says Omniture CEO Josh James. "They all know who Adobe is."

The other challenge is Google (GOOG), which makes a set of software tools called Google Analytics available for free and introduces technical improvements about twice a year. "They continually raise the bar for Web analytics companies," says John Lovett, an analyst at Forrester Research (FORR). Yahoo! (YHOO) also offers free Web analysis software.

U.S. companies will spend $431 million on Web analytics software and consulting this year, Forrester estimates, and the category could grow 17% a year through 2014. Adobe hopes it can snare enough of that market expansion to keep investors happy while it rebuilds its ailing Creative Suite franchise.

Ricadela is a writer for BusinessWeek in Silicon Valley.

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