Adobe’s Creative Cloud Product Achieves Gains in Q2


Adobe Systems’ second-quarter results were mostly within analyst’s range of expectations. Revenue declined 10.1% from the year-ago period, 3.7% below our model’s projection, as the business continues its transition from perpetual license to subscription model. In its digital media business segment, which includes the flagship Creative Cloud and Creative Suite products, revenue declined 18.1% to $670 million, 5.9% below our model as adoption of Creative Cloud was slightly ahead of guidance.

In its digital marketing business unit, revenue increased 13.8% to $285 million, 0.7% ahead of our estimate driven by strong results from the Adobe Marketing Cloud product line. Revenue at its print and publishing business unit was flat year over year at $55.1 million, and 3.1% ahead of our model. Management reported stable demand across major geographies. However, adoption rates of Creative Cloud was higher in North America than Europe and Asia.

GAAP operating margin was 11%, with non-GAAP operating margin at 24.5%, well below the year-ago period’s 27.1% GAAP and 36% non-GAAP operating margins. We expect margins to remain lower in the near-term, as the business model continues its transition. GAAP earnings per share came in at $0.15, a penny below our forecast. Non-GAAP earnings per share were $0.36 again, a penny below our estimate.

Management provided third-quarter revenue guidance of $975 million to $1.025 billion, which represents a year-overyear decline of 5.1% to 9.8%. GAAP and non-GAAP earnings per share were guided to $0.10 to $0.16 and $0.29 to $0.35, respectively. We are forecasting a revenue decline of 7.2% and GAAP EPS of $0.16 with non-GAAP EPS of $0.36. Management left guidance for fiscal 2013 unchanged. However, we believe there is some room for upside to their numbers as Enterprise Term License Agreement conversions accelerate in the latter half of the year.


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