Adobe Systems Profit Surges - Update

By Maria Armental 

Adobe Systems Inc. profit surged in the first quarter as the software maker continued its shift to subscriptions, which are more predictable than product sales.

In the current quarter, Adobe projects a profit of 41 cents to 47 cents on $1.13 billion to $1.18 billion in revenue, compared with 48 cents a share on $1.18 billion in revenue, according to analysts surveyed by Thomson Reuters.

Shares fell nearly 4% to $76.51 in recent after-hours trading.

The maker of Photoshop and Illustrator design software has been switching its revenue base to subscription cloud services as customers increasingly opt for monthly subscriptions, rather than buying the software outright, which is recorded as an upfront license fee.

Recurring sources, such as Creative Cloud and Adobe Marketing Cloud, accounted for 70% of revenue in the latest period, compared with 52% a year earlier.

Meanwhile, Adobe added a net 517,000 Creative Cloud subscribers, which represents a 28% year-to-year increase.

Overall, for the period ended Feb. 27, Adobe reported a profit of $84.9 million, or 17 cents a share, up from $47 million, or nine cents a share, a year earlier. Excluding stock-based compensation and other items, profit rose to 44 cents from 30 cents.

Revenue rose nearly 11% to $1.11 billion.

Adobe had projected a profit of 34 cents to 40 cents a share on $1.05 to $1.1 billion in revenue, excluding the impact of its acquisition of Fotolia, which closed during the quarter.

Subscription revenue rose 68% to $713.4 million, while product revenue fell 38% to $290.8 million.

Gross margin narrowed to 85% from 85.2% a year earlier.

Through Tuesday's close, the company's stock had risen nearly 17% over the past 12 months.

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