Adobe Picks Up 517K Creative Cloud Subscribers In Its FQ1

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In its most recent financial period, Adobe picked up 517,000 net new subscribers to its Creative Cloud product, helping the company generate $1.11 billion in revenue, and adjusted profit of $0.44 per share. Using normal accounting methods (GAAP), Adobe ended the period with a slimmer $0.17 per-share profit.

Despite beating market expectations for revenue ($1.09 billion) and adjusted profit ($0.39 per share), Adobe shares are down nearly 4 percent in after-hours trading.

The cause for that, as far as I can tell, is that Creative Cloud’s growth slipped compared to the preceding quarter and could be under market expectations. VentureBeat’s Harrison Weber has the correct take:

Adobe aims to hit six million paid subscribers by the end of 2015, and at the current rate, the company might fall short. Adobe added 517K new paying Creative Cloud subscribers this quarter. By contrast, the company added 644K paid subscribers last quarter, and ended 2014 with 3.454 million paying subscribers.

Using Weber’s numbers, Adobe ended the period with 3.971 million Creative Cloud subscribers. Adobe’s official earnings call transcript calls the figure “over 3.9 million.” Either way, reaching 6 million subscribers over the next three earnings periods implies that Adobe will have to increase its subscriber accretion pace by an aggregate of 258,000, calculating the forward-expected-deficit using an average new subscriber collection rate generated by deriving the middle ground between FQ4 2014 and FQ1 2015 performance of the metric.

Put more simply: Adobe has to pick up the pace, or it will miss its goal.

Also potentially dragging down Adobe’s shares is lower-than-expected, per-share forecasted profit in its FQ2, or current quarter. Here’s the company’s full guidance for the period:

Screen Shot 2015-03-17 at 2.00.38 PM

Investors currently expect Adobe to earn $0.48 in adjusted profit during the quarter. In contrast, Adobe appears set to beat revenue expectations in the period provided that the street doesn’t revise its expectations north.

How is Adobe’s transition to a subscription software business performing? The company had annual recurring revenue (ARR) from its Creative Cloud business of $1.79 billion at the end of the quarter. That’s up from the sequentially preceding quarter’s $1.676 billion in ARR from Creative Cloud. In total, 70 percent of the company’s revenue in the first quarter came from what Adobe calls “recurring sources.” That’s up from the sequentially preceding quarter’s 66 percent figure.

Adobe is generating more revenue than the markets expected as it works to grow its company-wide recurring incomes. However, at the same time, weakness in subscriber growth to its Creative Cloud product, and impaired adjusted profit when contrasted with current expectations are headwinds for the creative software company.

Then again, with cash and short-term investments of more than $3 billion, I doubt that Adobe gives too many fucks.