Company Will 'Continue to Evolve' Offerings to Attract Customers As Perpetual CS Licensing Winds Down
Despite controversy over its move to a subscription-based business model with the latest version of its creative toolset, Adobe said yesterday that subscriptions to its Creative Cloud offerings have continued to grow. The company had more than 1.4 million individual and team Creative Cloud subscribers as of November 29, the end of its fiscal year.
"Customer satisfaction [with Creative Cloud] is high based on our surveys," said Adobe President and CEO Shantanu Narayen during a conference call with investors. "In adddition to paid members, we currently have millions of customers in the pipeline who are trying out the service."
That adds up to $768 million in annual recurring revenue from Creative Cloud, said Executive Vice President and CFO Mark Garrett, noting that subscriptions make "a more predictable revenue stream" for the company. Almost all of the subscriptions are annual plans, with only 4 percent of users opting to pay month by month (which is 50 percent more expensive). Adobe closed more than 1,000 Creative Cloud enterprise licensing contracts, which are generally three-year agreements, during the year, Garrett said.
Some users have been calling for Adobe to make some adjustments to the Creative Cloud license, and the company acknowledged that the offering will "continue to evolve," citing a package with photography apps Photoshop and Lightroom that was offered for just $9.99 a month beginning in September. "Uptake on this offer has been strong," Narayen said. He did not, however, go so far as to suggest that similar packages may be in the works on the video side. Per-user revenue dipped slightly in the quarter, officials said, owing in part to that Photoshop promotion, but overall "it continues to be more than what we got under the old perpetual model," Garrett said.
Adobe's income statement took a bit of a hit in 2013, with increases in subscription revenues not yet making up for a decline in revenue from perpetually licensed products. (Adobe obviously expects this situation to change as more subscribers come on board.) Net income for fiscal 2013 fell to $290 million (on revenue of $4.1 billion) from $833 million (on revenue of $4.4 billion) in the previous year.
And Adobe is looking at next year conservatively, too. It's projecting flat revenue for fiscal 2014, even as it expects Creative Cloud subscriptions to more than double to 3 million by the end of the year. Adobe is more optimistic about the longer term, targeting compound annual revenue growth of around 20 percent between fiscal 2014 and fiscal 2016.
Finally, Adobe said fiscal 2014 will be the last year it posts any "meaningful … perpetual revenue" from the Creative Suite, meaning if you really want any more seats of CS6, you should buy them sooner rather than later, since the company is closing the door on perpetual licenses.