Adobe meets Q3 estimates, cuts outlook based on cloud transition

The good news for the company is that it's seeing better-than-expected subscriptions to its Creative Cloud. The bad news is there's a revenue hit during the transition.

Adobe's fiscal third quarter results were roughly in line with expectations, but the company cut its outlook based on a transition to a cloud computing model.

The company reported third-quarter earnings of $201.4 million, or 40 cents a share, on revenue $1.08 billion, which met the low end of Adobe's expectations. Non-GAAP earnings in the third quarter were 58 cents a share, in line with estimates. 

The good news is Adobe is seeing better-than-expected subscriptions to its Creative Cloud. The bad news is there's a revenue hit during the transition. Adobe said:

During the quarter, the company drove faster adoption of Creative Cloud subscriptions than originally projected. As Adobe customers migrate from a legacy Creative Suite perpetual licensing model to new Creative Cloud subscriptions, revenue is recognized over time as opposed to at the time of purchase.

Adobe landed 200,000 Creative Cloud subscriptions in the third quarter. As noted previously, Adobe expects that most of its revenue will be cloud based, but the transition will hurt at first

The initial hit starts with the fourth quarter results.


Adobe said that it expects fourth-quarter revenue of $1.07 billion to $1.12 billion with non-GAAP earnings of 53 cents a share to 58 cents a share. GAAP earnings will be 34 cents a share to 39 cents a share. Wall Street was expecting non-GAAP earnings of 67 cents a share with revenue of $1.2 billion.

For the fourth quarter, Adobe is expecting 125,000 new Creative Cloud subscriptions, or $94 million in perpetual revenue.

The bottom line is that Adobe is making a nice transition to the cloud, but that's going to ding revenue for a bit. Simply put, Adobe is collecting revenue, but some of that will land later instead of sooner. In the long run, Adobe's transition isn't a terrible problem to have. 

This story was first posted as "Adobe cuts outlook on Creative Cloud transition" at ZDNet's Between the Lines.
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