Adobe Shares Soar to Record as Shift to Cloud Gains

Adobe Systems Inc.’s shares soared to a record after the company posted quarterly subscriber gains that showed it is making progress in its transition to cloud software.

Adobe jumped 8.2 percent to $73.08 at the close in New York, after reaching $74.69, the highest price since the company’s initial public offering in 1986. The stock has gained 22 percent this year.

The San Jose, California-based software company yesterday said it added online subscribers at a faster-than-projected rate in the fiscal second quarter, bringing on 464,000 customers for its Creative Cloud Web software and pushing the total to 2.31 million. That exceeded the 2.3 million subscriber-estimate of Mark Moerdler, an analyst at Sanford C. Bernstein & Co.

Revenue rose 5.7 percent to $1.07 billion, the company’s first sales growth in six quarters. Profit excluding certain items was 37 cents a share for the period ended May 30, the company said in a statement. That topped analysts’ average estimate of 30 cents a share on sales of $1.03 billion, according to data compiled by Bloomberg.

Adobe has been trying to tap customers to purchase subscriptions for software based in the cloud, helping to smooth revenue by replacing one-time purchases of programs such as Illustrator and Photoshop. While the transition has resulted in sales declines for several quarters, Chief Executive Officer Shantanu Narayen is willing to endure the bumps to reignite demand for applications such as Photoshop, Illustrator and Dreamweaver.

Subscriber Growth

“They are moving quite well to cloud subscriptions,” Moerdler said in an interview, adding that the rate of customers switching has been ahead of Adobe’s projection of 4 million by the end of 2015. “The numbers moving over are significant.”

Adobe had forecast it would add 424,000 new subscribers to its Creative Cloud product, which includes versions of Photoshop and Illustrator.

Second-quarter net income rose to $88.5 million, or 17 cents a share, from $76.5 million, or 15 cents, a year earlier.

In another sign that the shift to cloud is gathering momentum, Adobe said it anticipates adding about 1 million subscribers for Creative Cloud in the second half of the year. That would bring the company to a total of 3.3 million by year-end, 300,000 above an earlier forecast.

“A number of the people that are signing up for Creative Cloud are new customers,” Narayen said on a conference call. “Therefore that’s expanding the available opportunity.”

The company will unveil a new version of Creative Cloud today that will include features for consumers and hobbyists in order to increase the customer base, Narayen said.

The Outlook

For the current quarter, Adobe projected revenue of $975 million to $1.025 billion and profit excluding items of 22 cents to 28 cents a share. That topped analysts’ estimates of revenue of $1.02 billion and 27 cents, according to data compiled by Bloomberg.

Adobe’s products are used by marketing departments for graphic design, as well as by software developers building websites and mobile applications. Profit has suffered as Adobe shifts from selling versions of the desktop software priced as much as $2,600 to subscriptions for its Creative Cloud software that costs $50 a month.

“It’s time for Adobe to smell the roses,” said Brent Thill, an analyst at UBS, who has a buy rating on the shares. “All the hard work in this business model transition is starting to pay off.”

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