Adobe profit beats on strength in its digital media business

Shantanu Narayen
Mark Neuling | CNBC

Photoshop maker Adobe Systems on Thursday reported a better-than-expected quarterly revenue and profit, driven by strength in its digital media business, which houses its flagship product Creative Cloud.

Shares of the company, which also forecast first-quarter profit above estimates, were up 1.7 percent at $178 in extended trading.

The shift to cloud-based subscription has brought a more predictable revenue stream for Adobe, by selling its software through web-based subscriptions, and not through the sale of packaged-licensed software.

Revenue from Adobe's digital media business rose 29.2 percent to $1.39 billion, beating analysts' estimate of $1.35 billion, according to financial data and analytics firm FactSet.

"Digital Media could benefit from strong seasonality, especially with ETLA (Enterprise Term License Agreement) renewals as enterprises could expand more aggressively in front of price lift," Cowen and Co. analyst Derrick Wood wrote in a pre-earnings note.

The company in October said it would hike the subscription fee for new updates of various Creative Cloud products starting March 2018.

"FY17 was another strong year for Adobe, highlighted by record Creative Cloud, Document Cloud and Experience Cloud revenue, and capped off by the first ever $2 billion quarter in company history," CEO Shantanu Narayen said.

Adobe said on Thursday it expected an adjusted profit of $1.27 per share and revenue of $2.04 billion for the first quarter. Analysts were expecting a profit of $1.24 per share and revenue of $2.04 billion, according to Thomson Reuters I/B/E/S.

The company's net income rose to $501.5 million, or $1 per share, in the fourth quarter ended Dec. 1, from $399.6 million, or 80 cents per share, a year earlier.

Excluding items, Adobe earned $1.26 per share, beating the average analysts' estimate of $1.16. Total revenue rose 25 percent to $2.01 billion, beating estimates of $1.95 billion.