© dado ruvic / reuters/Reuters
Dec. 16, 2016 12:03 p.m. ET
Few software companies have managed the transition to the cloud as deftly as Adobe Systems. But high expectations mean the company needs to keep making it rain.
Known primarily for software used to create and manage digital content, Adobe has spent the last few years moving away from the traditional software licensing business model to cloud-based services paid for through subscriptions. Many other established software companies have been attempting the same, though Adobe is ahead of most. For its fiscal year ended Dec. 2, subscriptions represented 78% of Adobe’s total revenue compared with just 11% five years ago.
Subscriptions offer a more stable base of recurring revenue than traditional licenses, but Adobe hasn’t simply been replacing one form of sales for the other. The company is also enjoying an overall growth spurt, thanks to demand for services such as Marketing Cloud and Creative Cloud.
The Wall Street Journal
The latter hosts popular applications such as Photoshop and Illustrator and is Adobe’s largest business. The company said Thursday that Creative Cloud revenue jumped 38% to $3.2 billion for the fiscal year—a notable acceleration from the 27% growth the previous year.
Wall Street expects the brisk pace of growth to continue. And at 28 times forward earnings, Adobe can’t really afford to slip. But even with the pressure of a strengthening dollar, the company should be able to keep up the pace. It recently struck an important cloud deal with Microsoft. And Mark Moerdler of Bernstein estimates about seven million customers still using Adobe’s products have yet to shift over to subscriptions. That should help Adobe’s cloud stay full.
Write to Dan Gallagher at [email protected]