Adobe ends Q3 on mixed note but Creative Cloud subscriptions continue to climb

Revenue numbers left something to be desired, but Adobe's commitment to the cloud is reinforced by continued subscriber growth.
Written by Rachel King, Contributor on

Adobe published third-quarter earnings after the bell on Tuesday, and the results were a bit of a mixed bag.

The software giant reported a net income of $44.7 million, or nine cents per share (statement).

Non-GAAP earnings were 28 cents per share on a revenue of $1.005 billion.

Wall Street was looking for earnings of 26 cents per share but with revenue of $1.02 billion.

Despite quarterly results leaving something to be desired, CEO Shantanu Narayen remained optimistic in prepared remarks, predicting a strong finish for 2014 by highlighting acceleration for Creative Cloud and Adobe Marketing Cloud adoption.

Adobe CFO Mark Garrett concurred on the Marketing Cloud note, adding that "In Q3, 63 percent of our revenue was recurring, demonstrating the continued success of our business model transformation."

The Adobe Marketing Cloud unit accounted for $290 million in Q3 revenue, which Adobe asserted was propelled by strong subscription growth.

Adobe didn't break out Marketing Cloud subscriber numbers, except to note that "the number of customers with annual contract value of greater than $500,000 grew by more than 40 percent year-over-year" in Q3.

As for Creative Cloud, the San Jose-headquartered firm ended the quarter with more than 2.81 million paid subscriptions for the cloud-based design software bundle, up 502,000 from last quarter.

Narayen noted that Adobe plans to fuel Creative Cloud growth further through three primary methods: aggressively convert more desktop Adobe software customers to Creative Cloud, target new customers with tailored offerings (i.e., Creative Cloud for photographers, etc.), and add more mission critical services (i.e., mobile apps built on Adobe's SDK).

"Digital marketing is an explosive category that is fundamentally transforming every business," Narayen remarked. "In order to enable the personalized experience that every consumer expects, companies need to invest significantly in a modern technology platform. This revolution is beginning in marketing, but is extending to include the entire real-time enterprise."

Looking forward, Wall Street expects Adobe to deliver fourth-quarter earnings of at least 31 cents per share on top of revenue of $1.09 billion.

Adobe followed up with a softer Q4 revenue guidance range of $1.025 billion to $1.075 billion.

Chart via Adobe Investor Relations

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