Adobe Bets on Growth from Creative Suite, Cloud and Digital Marketing
Adobe (NASDAQ:ADBE) reported its Q1 FY12 earnings on March 19, with quarterly revenue of $1.045 billion, a marginal increase year-over-year. [1] Adobe has restructured its business in the last couple of quarters, focusing on digital media and digital marketing. 2012 will be a crucial year for Adobe as it launches the latest version of Creative Suite as well as its new initiative – Creative Cloud. Adobe competes with Apple (NASDAQ:AAPL), Quark and Corel in creative software, and Google (NASDAQ:GOOG) Analytics in web analytics and marketing.
“Our strategy is to be the leader in Digital Media and Digital Marketing. With the upcoming release of our Creative Suite and Creative Cloud offerings, and with the momentum we have in Digital Marketing, we remain confident about our ability to drive strong revenue and earnings growth,” said Shantanu Narayen, president and CEO of Adobe.
We have a $34 Trefis price estimate for Adobe, which stands marginally above its current market price.
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Digital Media
Digital Media is going to be Adobe’s primary focus going forward and its most important business in terms of revenue growth potential in 2012. Creative software revenues slowed down in Q1 2012, as customers hold off purchases due to the impending launch of the next version – Creative Suite 6. It will include major updates to all of Adobe’s core products like Photoshop, Premiere Pro, After Effects, InDesign, Illustrator and Dreamweaver.
More importantly, Adobe will also launch Creative Cloud and try to move to a subscription-based model, which will offer instant software upgrades, synchronization between multiple devices, and free online storage. With this move, Adobe hopes to streamline the upgrade processand also generate a steady stream of monthly subscription revenue instead of bursts driven by its software upgrade cycle. Adobe’s digital media revenues should see a significant jump in 2012, driven by sales of Creative Suite and Creative Cloud.
Adobe also announced the launch of several tablet apps for iOS and Android, which should lead to increased sales as the tablet market continues to expand in the coming years. Digital media offerings, including Creative software, contributed to nearly 70% of Adobe’s overall revenue in Q1 2012. We expect the proportion to jump in coming quarters following the launch of Creative Suite 6 and Creative Cloud.
Digital Marketing
Digital Marketing is going to be another major focus for Adobe going forward. It recently acquired Efficient Frontier, a leading ad buying and optimization platform for Facebook and Google AdWords as well as Auditude, which specializes in video advertising. In Q1, it also signed up some major customers like Fox, J. Crew, Electronic Arts, Samsung, British Petroleum, Citibank and Kohl’s. Digital Marketing contributed to nearly 25% of Adobe’s revenue in Q1 2012. We expect the proportion to remain nearly the same going forward.
Creative software accounts for nearly 50% of Adobe’s value, while digital marketing offerings and LiveCycle account for around 20%.
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Notes:- Q1 FY2012 Earnings Call Script, Adobe [↩]