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Adobe: Reaping the Benefit of Cloud Market

March 27, 2014 | About:

Adobe (NASDAQ:ADBE) operates as a diversified software company worldwide. Its digital medical segment provides tools and solutions that enable customers monetize their digital content anywhere. The company’s digital marketing segment provides solutions for optimizing the operation of digital advertising businesses. The print and publishing segment provides products that address diverse market opportunities. One of the company’s flagship products is Adobe Creative Cloud. This is a service that enables consumers to download and install the latest version of their creative products.

Numbers at a Glance

Adobe is redefining the digital marketing sector. In the first quarter, it achieved $1 billion in revenues, with non-GAAP earnings per share of 30 cents. The company’s Adobe Creative Cloud grew to just under $1billion. Adobe exited the quarter with over 1.8 million subscriptions. This was an improvement from the 405,000 recorded at the end of the fourth quarter. Revenues from marketing cloud software subscriptions rose 24% on a year-on-year basis to $267 million. Adobe’s total subscription revenue soared 89% to $423.6 million.

Positive Outlook

Adobe is achieving a significant milestone with its transition to the cloud computing segment. It is expecting a revenue range of $1 billion to $1.5 billion in the second quarter. It expects the total Digital Media and Adobe Marketing revenue to grow sequentially. Adobe expects to add approximately the same number of Creative Cloud subscriptions as what was achieved in the first quarter. Furthermore, the company is targeting a quarter two GAAP earnings per share range of 6 cents to 12 cents per share.

Growth Drivers

In the last year, Adobe announced a move to switch to a subscription-based model. Though the move irked its customers, it appears that the shift has now been accepted. A substantial part of Adobe’s total revenue came from creative cloud subscriptions.

In February, it announced the integration of its Digital Publishing Suite and Adobe Experience. The initiative allows publishers and brands to deliver experiences across content-rich apps like digital magazines. This will allow for a faster and more accomplished publishing process.

Last year, Adobe acquired Neolane for the sum of $600 million. Through the acquisition, Adobe puts itself into a strong position in the fight for the leadership of the marketing cloud sector. To further strengthen its marketing and analytics business, Adobe also bought Satellite, a technology that helps marketers with analytics across web sites.

Head to Head

Adobe faces a stiff competition from Apple (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and a privately held company called Quark Inc. Although Adobe’s market rivals are looking to expand into the cloud computing segment, I believe the firm will be able to maintain its growth through its product differentiation solutions. Furthermore, the Adobe Creative Cloud is positioned as one of the most popular brands in the application software sector.

International Expansion

Global organizations need social publishing tools, and Adobe is making sure it is committed to its customers worldwide. Consequently, Adobe has wings in countries that show an IT presence.

A Focus on China

For example, Adobe has been reorganizing its business in Greater China. As part of the process, Adobe closed its Taiwan office. However, the Hong Kong office still offers support for the sale of its partners. Additionally, Adobe Social now supports Sina Weibo, China’s social network. The initiative will enable companies to integrate with Adobe Analytics platforms. The project will ultimately boost Adobe’s revenues.

A Passage to India

Aiming to leverage cloud trends to increase revenues, Adobe launched the Creative Cloud in India. The product offers a membership-based service. It targets small and medium businesses in India.

On a Concluding Note

Adobe’s customers are migrating to its creative cloud solution. The company’s ongoing flow of innovative products is driving customers' adoption of its products. This will bring even more shareholder value in the future. In conclusion, Adobe has enough room to show more growth in the next few quarters. It will provide good returns to its investors going forward.

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