After the bell today, Adobe announced its fiscal second-quarter financial performance, including $1.07 billion in revenue, $0.17 per share in earnings using GAAP metrics, and $0.37 per share without.
The company’s shares are up sharply in after-hours trading, spiking more than 9 percent.
Critical to the company’s quarter are the 464,000 new Creative Cloud subscriptions it picked up, ending the three-month period with 2.308 million total subscribers. Creative Cloud is a blend of cloud storage and applications for creative types. It retails for as little as $19.99 per month, and up to $74.99.
Adobe is transitioning from selling software in boxes to selling it as a service. Microsoft is another company making the transition to selling software on a recurring basis, instead of on a multi-year cycle.
But there is a wrinkle to selling a product as a service instead of a single paid unit: Your sales costs might be the same, but the ensuing revenue will come in pieces over an ensuing set of payments. So you front load your costs, and accrete your revenue. Annual recurring revenue (ARR) is a metric used by many software-as-a-companies to better explain to investors what their future incomes will be, in comparison to current GAAP expenses.
Adobe’s current ARR for its Creative Cloud product grew to $1.2 billion in the quarter, according to the company’s release.
In the quarter, 53 percent of Adobe’s revenue was recurring, according to the company. This is likely a similar percentage to what the company recorded in its first fiscal quarter of 2014, when it reported that “more than half” of its revenue in the period was recurring.