Adobe Earnings Will Show A Shift To The Cloud

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Adobe ( ADBE ) will report its Q3 FY12 earnings on September 19. We take a quick look at a few key drivers that we think will drive Adobe's earnings going forward. Adobe has restructured its business to focus on two areas - digital media and digital marketing. It has released products such as Adobe Social with an eye on the booming cloud and social analytics market. It has also changed its business structure to a subscription model on the cloud through its Adobe Creative Cloud. In this earnings release, we will look primarily at how Adobe is doing in the digital media and marketing space.

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Creative Cloud Growth Is Key

Adobe has guided that for Q3 2012, it expects revenue of $1.075 - $1.125 billion, diluted EPS to be in the range of $0.38-$0.43 on a GAAP basis, and $0.56-$0.61 on a non-GAAP basis.

Adobe has a majority of the market share in the creative software space thanks to the continued success of its Creative Suite line of products. The majority of its revenues are driven by Creative software like Photoshop, which is why Creative Cloud is expected to be one of its most important releases to date.

The subscription-based model was made available on May 11, 2012 to users at $49.99 a month and will allow users to access the entire CS6 suite as well as exclusive online content. Considering the fact that the entire package is currently available for $2,599, the subscription model will attract and encourage part time and casual users. The subscription model can make it cheaper for users to access the software, but there is an added advantage for the providers who can exercise better control over software maintenance and updates. There is however a chance that revenues will suffer in the short term as users migrate to the cloud based offering.

We currently have a $32.58 Trefis price estimate for Adobe , which stands just below its market price. Creative Software accounts for nearly 50% of its total value.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: ADBE , HPQ , MSFT , SAP

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