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Adobe feeling drained by new model, but hopes things will improve

No going back to boxy bust'n'boom

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Adobe's second quarter net income eased on poor European demand as well as its move to take Creative Suite into the cloud.

Net income eased 2.4 per cent to $223.8m from $229.4m in the same quarter of last year. Adobe also said that it was cutting its revenue growth estimate for the full year, blaming the economic crisis in Europe.

"For the full year, we are narrowing our annual revenue growth target to a range of 6 per cent to 7 per cent to reflect the current European economic conditions," CEO Mark Garrett said in an earnings call.

The company's ever-popular editing software was updated to a new version in the second quarter of this year, which usually gives its sales a lovely boost, but Adobe is getting its money from Creative Suite 6 in a cloudy fashion.

The software suite – which includes arty tools like Illustrator, InDesign, Dreamweaver and Photoshop – has been shoe-horned into a web-based subscription model, instead of being available to punters via a one-off hefty price tag, cutting into Adobe's sales figures.

Designers and editors are now in Adobe's Creative Cloud, where they subscribe to rent software with the added benefit of online storage and frequent updates. Adobe wants to move to subscriptions for its software so it can have more consistent revenue and income, rather than peaking and troughing with new releases.

While the strategy may be making Adobe look bad at the moment, there are signs it could work long term. Garrett said that the firm now has 90,000 paid subscriptions, with 75 per cent of those electing to pay annually rather than month-to-month, suggesting a higher level of commitment to the service.

"We are building a healthy pipeline for potential Creative Cloud paid subscribers through marketing programmes, trial downloads and free memberships. Currently, we are adding more than 5,000 total net paid subscriptions per week," he added.

Despite long-term optimism for Creative Cloud, Adobe is forecasting sales to be less in the third quarter, although it's also blaming Europe's weak demand for that.

Revenue in the second quarter was $1.12bn, hitting or narrowly missing many analyst expectations and up slightly from the same quarter last year, which saw revenue of $1.02bn.

Shares in Adobe fell in after-hours trading following the earnings announcement. ®

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