) is set to announce its Q4 2013 earnings on December 12.
While the company continues to post excellent growth in its cloud
subscription business, its revenues and profits have fallen
significantly in the recent quarter due to the shift in focus from
a perpetual licensing model to subscription services. In Q3, the
company reported 8% y-o-y decline in revenues to $995.1 million,
while its net income declined by 60% y-o-y to $83 million. In this
earnings announcement, we expect the growth trend in cloud
adoption to continue, which will drive revenues for Creative
solutions and Acrobat family divisions. However, we expect the
revenues from LiveCycle and Connect business to decline, and the
Print and Publishing business to remain flat during the
Check out our complete analysis of Adobe
Outlook for Q4 CY13
For Q4 CY13, Adobe expects revenue in the $1 billion-$1.05
billion range and non-GAAP earnings per share between 28-34 cents.
Additionally, the company has projected that its subscriber base
for Creative Cloud services will increase to 1.35 million by the
end of this year. According to our calculations, the subscriber
base target means that Adobe needs to add over 27,000 paid users
per week for Q4 2013, 10% more than its past weekly subscription
rate of 24,000. This translates into total annual recurring revenue
) of approximately $685 million by the end of fourth quarter.
Additionally, we expect the company to report 25% y-o-y growth in
its digital media ARR to $875 million, and 20% growth in document
services ARR to $115 million in FY 2013. Adobe expects 2013 revenue
of $4.05 billion and EPS of $0.56 on a GAAP basis and $1.34 on a
Growth In Cloud Services To Continue
According to our estimates, the Photoshop and Creative Software
division is the biggest of Adobe's operating segments and makes up
approximately 55% of the its value. During Q3 2013, this segment
generated approximately $637 million in revenues.
In the past few quarters, Adobe's cloud subscription service has
witnessed robust growth as clients have increasingly adopted these
services to drive collaborative development efforts across their
companies. While we expect that the share of revenue from Creative
Cloud (CC) will continue to grow in Q4, the adoption of CC will
lower the revenues and profitability as subscription services
spread these over the period of the software's use. Adobe has
over 12.8 million point and suite software licenses in Q3, and we
expect many of these licensees to adopt CC in the coming quarters.
Therefore, we believe that the company will continue to report
traction for its cloud services in this earnings announcement.
Revenues To Decline At Acrobat Family Division
Adobe Acrobat family is the second largest division at Adobe and
makes up 12% of its value. The Acrobat family division reported a
2% y-o-y decline in revenues to $182 million in Q3. We expect this
trend to continue in Q4 as its point product document services
continue to decline. However, we expect the company to report
incremental revenues from Acrobat document cloud services, which
will stem the decline in Acrobat family division to some extent.
Additionally, we continue to closely monitor the growth in
Enterprise Term Licensing Agreements (ETLAs) that are instrumental
in bringing new business to this division.
Adoption Of Adobe Marketing Solutions in Focus
Omniture is Adobe's third largest division and makes up 10% of
its value by our estimates. Adobe acquired Omniture in 2011, and
since has included all of Omniture's products under its digital
marketing cloud division.
Adobe is aiming to increase its revenues from cloud based
marketing solutions by expanding in new geographies and verticals.
As Adobe continues to develop its marketing solutions capabilities,
we expect this division to emerge as an important driver for
revenue growth. In this earnings announcement, we expect the
company to report growth in revenues from new geographies.
Additionally, since many of Adobe's digital marketing solutions
cater to the growing big data analytics, mobility and social media
industries, we expect the company to post incremental revenues
across these industries.
We currently have a
$41.16 price estimate for Adobe
, which is around 25% below the current market price.
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