Adobe Forecasts Sales That May Top Estimates on New Programs

By Aaron Ricadela - Dec 16, 2011 8:17 AM GMT+0700

Adobe Systems Inc. (ADBE) forecast fiscal first-quarter sales that may top analysts’ estimates amid buoyant demand for a new breed of tools that help customers design Web pages and create online video.

Revenue in the quarter that ends March 3 will be $1.03 billion to $1.08 billion, the company said in a statement today. That compared with $1.06 billion, the average estimate in a Bloomberg survey of analysts. Profit excluding certain items will be 54 cents to 59 cents a share, compared with the average 58-cent estimate. Shares gained in late trading.

Adobe, the largest maker of graphic-design software, last month reduced its sales outlook and said it will cut 750 jobs and stop making Flash software for mobile devices. The company is retooling its product line to better support the HTML5 Web- programming language, which has backing from companies including Apple Inc., Microsoft Corp. and Google Inc. It’s also aiming to get more revenue from online subscriptions.

“Adobe remains the premier company in terms of share, breadth of products and brand name” in the graphic-design software market, said Jay Vleeschhouwer, an analyst at Griffin Securities Inc. in New York. “It was a mistake to think Adobe would somehow not be right in the middle of participating in the HTML5 phenomenon.”

Vleeschhouwer has a “buy” rating on the shares and doesn’t own them.

Creative Suite

The San Jose, California-based company is releasing a new version of its flagship print- and Web-design software, Creative Suite 6, next year. The suite, plus individual sales of its programs such as Photoshop, Dreamweaver and Illustrator, supplies more than half of Adobe’s sales. Adobe will focus on tools that help customers work with HTML5 to design Web pages and produce online video.

For the fourth quarter, which ended Dec. 2, sales increased 14 percent to $1.15 billion, compared with analysts’ average $1.09 billion estimate. Profit excluding some costs was 67 cents a share, compared with analysts’ 60-cent estimate. Net income fell 35 percent to $173.7 million, reflecting the cost of job cuts in the quarter.

Shares rose in extended trading, advancing 5.6 percent to $27.95. The stock had slipped less than 1 percent to $26.46 at the close in New York.

Online Sales Pickup

One-third of Adobe’s design-software revenue will come from online subscriptions in three years, up from almost none now, Chief Financial Officer Mark Garrett said in an interview. The company’s advertising-software business may reach three-quarters of a billion dollars this fiscal year and will grow at about 25 percent annually, he said.

“This will be a billion-dollar business by itself,” he said. “We’re working hard to take a very fragmented market and pull it together.”

Chief Executive Officer Shantanu Narayen said the company’s design software business benefited from sales to large customers through traditional channels as well as individuals and smaller businesses through Adobe’s website.

“We had a healthy pipeline and the team executed,” he said on a conference call today.

Sales in the current fiscal year will increase 4 percent to 6 percent, Adobe said last month. At the time, analysts on average had estimated a revenue gain of 9 percent.

New Business Model

“A lot of the guidance takedown was due to the business model change,” said Ross MacMillan, an analyst at Jefferies & Co. in New York. “What’s maybe more surprising is the strength of the underlying business in Q4,” said MacMillan, who has a “buy” rating on the shares.

The company is overhauling the way it sells the Creative Suite to spur more frequent purchases of programs like Photoshop and Dreamweaver. As more customers seek to buy and use software over the Internet, Adobe plans to release a software package called Creative Cloud in the fiscal second quarter, Garrett said on today’s call.

Perhaps 15 percent of Creative Suite customers may buy cloud computing versions of the software, said Walter Pritchard, a San Francisco-based analyst at Citigroup Inc.

Adobe plans to introduce more tablet-computer software and subscription pricing plans starting at $50 a month, designed to attract new customers. It will also stop developing the Flash Player for mobile devices and instead emphasize the Air software, which will work with online application stores.

Recent acquisitions aim to expand Adobe’s Web publishing and advertising prowess. Last month, it said it would acquire online advertising company Efficient Frontier, which sells software that lets advertisers buy keywords on Google and place ads on Facebook. Adobe bought video advertising company Auditude Inc. on Nov. 1.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net