Adobe forecasts weak 2013 results, expects growth beyond

Thu Dec 13, 2012 6:37pm EST

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(Reuters) - Adobe Systems Inc (ADBE.O), maker of Photoshop and Acrobat software, forecast full-year results below analysts' estimates but expects profit and earnings to grow 2013 onwards.

The company forecast adjusted earnings of about $1.40 a share on revenue of about $4.1 billion for 2013.

Analysts on average were expecting earnings of $2.35 per share on revenue of $4.47 billion, according to Thomson Reuters I/B/E/S.

The company said it will be offering its web-based subscription service Creative Cloud to enterprise customers in 2013, and as part of the move is transitioning the customers to term-based Enterprise Term License Agreements (ETLAs).

Creative Cloud enables a customer to use the company's Creative Suite content remotely on a subscription basis. The suite includes popular design titles like Photoshop, Illustrator, InDesign, Flash and Dreamweaver.

"We expect the impact of these (Creative Cloud) subscriptions and continued adoption of ETLAs to effectively transition approximately $690 million of reported perpetual revenue to subscriptions next year," Chief Financial Officer Mark Garrett said on a conference call.

Chief Executive Shantanu Narayen said cash flow will be less than 2012 levels as the company goes through "this pivotal year". "From 2013 onward, revenue, margin and EPS (earnings per share) are all going to grow."

Revenue for the fourth quarter remained flat as more customers moved to the company's subscription service.

A rapid adoption of subscription service tends to lower revenue in the short term as fees are collected monthly, instead of upfront one-time payment.

Net income for the quarter ended November 30 rose to $222.3 million, or 44 cents per share, from $173.7 million, or 35 cents per share, a year earlier. Excluding items, the company earned 61 cents per share.

Operating expenses fell 8.7 percent to $720.7 million.

Revenue was flat at $1.15 billion.

Analysts on average had expected earnings of 57 cents per share on revenue of $1.1 billion.

Adobe said it added about 10,000 Creative Cloud subscriptions per week during the quarter, compared with 8,000 per week in the third quarter.

"Because the way they are driving that (subscription model) adoption through promotional pricing, that promotional pricing is offsetting to some extent the high adoption rate and so essentially revenues are flat," Edward Jones analyst Josh Olson told Reuters.

He said the company was executing its shift to subscription strategy better than expected, but "there's still some work to do, we'll see what 2013 brings."

Shares of the company have been rising since December 11 after Jefferies & Co raised its price target on the stock saying investors are now more comfortable with the business model change.

The stock was up 7 percent in extended trading on Thursday. They closed at $35.53 on the Nasdaq.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Maju Samuel)

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