Adobe’s Earnings Say a Lot About How Cloud Subscriptions Are Growing Its Available Market

By Aarthi Rayapura March 22, 2017

Excerpts from an article by Eric Jhonsa in TheStreet

Plenty of software companies have been successful at changing their business model from one in which they typically sell licenses for packaged software on an up-front basis, with perhaps some maintenance and support revenue obtained afterwards, to one in which they sell subscriptions for apps and cloud services available on multiple devices. Microsoft, which has used its Office 365 suite to return its Office franchise to moderate growth, is a notable example. So are, to some degree, Autodesk and Oracle.

But as its latest earnings report shows, Adobe Systems takes the cake in terms of how much its business model shift isn’t merely replacing one type of revenue source with another, but growing the company’s addressable market.

Adobe reported fiscal first quarter (February quarter) of $1.68 billion (up 22% annually) and adjusted EPS of $0.94 (up from $0.66), beating consensus analyst estimates of $1.65 billion and $0.87. Likewise, the company guided in its prepared remarks for May quarter revenue of $1.73 billion and EPS of $0.94, above a consensus of $1.71 billion and $0.91.

It’s safe to say that Adobe’s transition toward subscription revenue streams is largely complete. 85% of February quarter revenue came from recurring sources, and 82% from subscriptions. And it’s also clear that a dollar of lost license revenue is often being replaced (over the long run) by more than a dollar in subscription revenue, particularly among those who weren’t prone to upgrading to new versions of Adobe’s traditional packaged software frequently.

Read the full article here

And learn how Zuora helps companies from all industries transition to the Subscription Economy here!