Dark clouds for Adobe as profits slide by 46%

Barry Collins Read more September 17, 2014

Adobe has posted a 46% year-on-year drop in net profits, raising doubts over its strategy of shifting customers to cloud subscriptions.

Dark clouds for Adobe as profits slide by 46%

The company has spent the past couple of years attempting to wean customers off one-off purchases of software and move them on to Creative Cloud subscriptions.

However, this appears to be coming at the expense of profitability, with Adobe blaming higher operating expenses and weaker profit margins for the sharp dip in profits.

Adoption of Creative Cloud and Adobe Marketing Cloud continues to accelerate

Revenue from Adobe’s digital media business, which includes Creative Cloud, fell by more than 2% in the third quarter, even though the company added around half a million subscribers. The company says it has 2.8 million Creative Cloud customers, up from 2.3 million in the previous quarter.

Adobe recently introduced lower-cost subscription packages for photographers, which include Photoshop and Lightroom for £8.78 per month, a steep drop on the £46.88 per month charge for the full compendium of Creative Cloud apps.

Some analysts have suggested that while Adobe has enjoyed success converting enterprise customers to Creative Cloud, small businesses and individuals are more reluctant to sign up for rolling subscriptions, and are sticking with older versions of products such as Photoshop and InDesign.

Adobe remains confident in its long-term strategy, pointing out that 63% of its revenue for Q3 was recurring, rather than one-off purchases. “Adoption of Creative Cloud and Adobe Marketing Cloud continues to accelerate,” said Shantanu Narayen, the company’s CEO.

“We are the leader in both of these high-growth categories and have a rapidly growing pipeline, setting us up for a strong finish to the year in Q4.”