Adobe stock hits new peak as investors cheer subscriptions

Some customers aren't happy that Adobe's software now costs $50 every month. But 405,000 new Creative Cloud subscribers proved willing to pay in the last quarter, and Adobe shares reached $68.52 this week.

Adobe's Creative Cloud subscriptions rose to 1,844,000 by February 28, 2014.
Adobe's Creative Cloud subscriptions rose to 1,844,000 by February 28, 2014. Stephen Shankland/CNET

Those who despised Adobe's shift to its Creative Cloud subscriptions predicted that customer defections would sink the company's stock price -- but so far, the opposite is happening.

Adobe Systems' stock hit an all-time high in after-hours trading when Adobe reported strong first-quarter financial results on Tuesday. It surpassed analyst expectations and increased Creative Cloud subscriptions by 405,000 from the previous quarter to reach 1.84 million.

In after-hours trading, Adobe's stock rose 35 cents, or about 0.5 percent, to an all-time high of $68.52.

The company is in the midst of a sales transition with software titles like Photoshop, Illustrator, After Effects, and Premiere Pro. In the past, it sold Creative Suite licenses, which were expensive but which permitted perpetual use. Adobe had to convince customers to pay for periodic upgrades, often holding back new features to make a splash.

But now it's moving to the Creative Cloud, which in its most widely used form costs $50 per month for customers who commit to a full year. Those who stop paying can't use the software until they sign up again. The subscription lets Adobe update the software frequently -- 500 new features arrived in 2013, the company said -- and add online services for publishing and file sharing.

Many customers don't like the Creative Cloud, but plenty of others do. Adobe increased its total to 1,844,000 at the end of the company's first fiscal quarter, which ended February 28. The company's goal is 3 million by the end of fiscal 2014.

One good thing about subscriptions is that once people sign up, it can be a powerful source of recurring revenue -- as long as a company can convince people to renew. Adobe reported annual recurring revenue from its CC subscriptions to have reached $987 million.

A recent survey by CNET and analyst firm Jefferies showed that 57 percent of Creative Cloud subscribers plan to renew, even though many no longer will get the first-year promotional pricing of $30 per month. However, the survey also showed customer satisfaction rates with the subscription to be dropping.

For the quarter, Adobe reported revenue of $1 billion. It earned 9 cents per share using generally accepted accounting principles; excluding some items, it earned 30 cents per share, which exceeded the average estimate of 25 cents per share from analysts surveyed by Thomson Reuters.

Adobe still sells its older CS6 version of Creative Suite products, but it has stopped adding any new features to the software.

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