Adobe shares fall on cut in forecast
(Reuters) - Shares of Adobe Systems Inc (ADBE.O) fell more than 7 percent on Wednesday after the Photoshop software maker cut its full-year revenue outlook, heightening concerns that the company's shift to a subscription model was slowing its growth.
The company said on Tuesday it expects third-quarter sales at its digital media unit that produces the Creative Suite design software to decline from second-quarter levels.
Analysts say the company's shift to subscriptions from a licensing model might reduce the revenue upswing it usually sees after the launch of a software upgrade.
Adobe launched its Creative Suite 6 - which includes Photoshop, Illustrator, InDesign, Flash and Dreamweaver - and the Web-based Creative Cloud product in the second quarter.
Transition to a subscription model often tends to be more difficult than the management initially expects, JMP Securities analyst Patrick Walravens said, downgrading Adobe to "market underperform" from "market perform."
While the company's forecast includes a subscription element to Creative Suite 6, Walravens does not expect the launch to be a significant driver of near-term revenue growth.
"The problem with this strategy (shift to subscription) is that it will take Adobe around four years to generate the same level of revenues from a single subscriber that it would have earned through the sale of a single perpetual license," Nomura analyst Rick Sherlund wrote in a note.
Jefferies analyst Ross MacMillan said Adobe's attempt to shift users to a subscription model at a faster rate using promotional pricing is also dampening growth.
Although subscription adoption is still modest, the model will help revenue predictability over time, Citi analyst Walter Pritchard wrote in a note.
Nomura's Sherlund also said most issues Adobe is facing seem specific to the company instead of being caused by macroeconomic factors.
Adobe's shares recovered slightly and were trading at $31.73 on Wednesday on the Nasdaq. They had touched a five-month low of $30.38 earlier in the session.
(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Sreejiraj Eluvangal, Supriya Kurane)
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