) beat its Q4 revenue guidance of $1.07-$1.12 billion and
reported record Q4 revenue of $1.15 billion, taking its annual
revenue to $4.4 billion. The company saw significant growth in its
Creative Cloud and Marketing Cloud initiatives. According to the
company, it has nearly 1 million free subscribers for the Creative
Cloud, along with 326K paid subscribers and at an average selling
$750 per subscription
, this leads to an annual recurring revenue of $153 million.
Adobe Marketing Cloud's Q4 revenues grew 32% on a yearly basis
to $220.4 million. The only significant drop in revenue was
reported in the LiveCycle and Connect business, which reported $70
million in Q4, down from $103 million last year. The company has
seen a faster-than-expected adoption of subscription licenses and
will focus on increasing its end-user subscriptions while rolling
out enterprise term licenses in 2013.
The company reported a diluted earnings per share (
) of $0.44 on a GAAP-basis and $0.61 on a non-GAAP
basis. Operating income and net income was $307.8 million and
$222.3 million, respectively, on a GAAP basis, whereas cash flow
from operations was $473.7 million. An indication of the popularity
of Creative Cloud was that it added 10,000 new subscribers each
week in Q4 2012, up from 8,000 last quarter. We examine some
of Adobe's key drivers below and its outlook for 2013.
Check out our complete analysis of Adobe
Outlook for Q1 2013 and FY 2013
Adobe has guided for revenues of $0.95-$1 billion for Q1 2013
mainly on the effects of the Q4 to Q1 cycle. This would lead to Q1
GAAP EPS in the range of $0.08 to $0.14 and Q1 non-GAAP EPS of
$0.26 to $0.32.
Adobe expects to have over 1.25 million paid Creative Cloud
individual and team subscriptions by the end of 2013, and according
to our calculations, it means it will need to add over 17.5K paid
users per week for the rest of 2013, nearly double its current
weekly subscription rate. This would give the company total annual
recurring revenue of approximately $685 million. The company claims
that 2013 will be the pivotal year in its transition to the
subscription model, and we expect it to end the year with
approximately $800 million of Digital Media annualized recurring
The company expects the LiveCycle and Connect business to
continue to decline, contributing approximately $200 million of
revenue in 2013, and the Print and Publishing business to be flat
year-over-year. Adobe expects 2013 revenue of $4.1 billion and EPS
of $0.62 on a GAAP basis and $1.40 on a non-GAAP basis.
Putting Subscription Model In Perspective
Growing the subscription business too quickly may become a
problem for Adobe in the short term. This model assures a regular
monthly revenue stream, but the licenses are sold at a higher price
point and too many subscriptions replacing licenses sold may
provide a rocky revenue stream in the short term.
Creative Software is the largest business for Adobe and we
estimate that the average price per license sold is somewhere in
the $850-$900 range, with the entire Adobe CS6 costing nearly
$2,500. We expect the company to sell around 2.5-2.75 million
licenses next year. Adobe also stated that it modeled an
80% retention rate
and the average selling price (
) for Creative Cloud subscription is $750.
In a scenario where most users transition to a subscription
model, it will potentially lose $250-$275 million annually next
year. However, this is not entirely bad as over a two-year refresh
period, it will have potentially made much more in subscription
revenues as users will need to pay an annual subscription fee of
$750 per year as opposed to $850-$900 for two years. This
calculation is based on average prices and will materially differ
based on the number of high-priced licenses sold versus the number
of lower-priced software licenses sold.
A likely indication of the trend that Adobe's high-end segment
buyers are transitioning to subscription is that it is pushing for
enterprise licenses in 2013 and that its guidance of $4.1 billion
in revenues for 2013 is lower than its revenues in 2012, and we are
likely to see this trend reverse very soon.
We currently have a $33 Trefis price estimate for Adobe, which
stands just below its market price. Creative Software accounts for
nearly 50% of its total value.
a Company's Products Impact its Stock Price at Trefis