Adobe Systems is at the beginning of its biggest shift in two decades.
We'll take a deeper dive when I interview Adobe CEO Shantanu Narayen on Tuesday following the company's earnings report. The numbers themselves probably won't be too surprising: analysts expect 31 cents in earnings per share on revenue of about $986 million. Both the EPS and revenue numbers are down from a year ago — so why is the stock near all-time highs?
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Because the company is doing what looked impossible just a couple of years ago. It's successfully moving its biggest business to a subscription model.
Rather than just sell Creative Suite software for $700 to $2,500 upfront, with Creative Cloud Adobe charges a subscription fee of $30 to $50 per month for access to its full library of creative software.
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That has some negative short-term effects — there's no short-term revenue pop when a hot new version of the software comes out. But the longer-term benefits are worth it. A subscriber doesn't buy software and use it without updating for more than two years, the way traditional software purchasers do. So if they sign up for the $50 per month level and stay there for a couple of years, it's worth it.
But the biggest thing happening at Adobe growth-wise is its Digital Marketing business. Adobe wants to be the go-to analytics company for measuring the effectiveness of digital content and advertising. That's business it is already a quarter of Adobe's annual revenue, and it's by far the fastest growing.