Adobe Earnings Beat; Analyst Calls Outlook ' Pretty Impressive'

Adobe Systems Inc. signage is displayed outside of the company's office in San Francisco, California, U.S.
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Adobe Systems Inc. signage is displayed outside of the company's office in San Francisco, California, U.S.

Adobe Systems which makes the Photoshop and Acrobat software, reported a higher-than-expected adjusted quarterly profit as demand rose for the subscription-based version of its flagship software package. The company said it expects earnings in the current quarter to be in-line with or lower than expectations.

Shares in the software maker rose more than 4 percent after the bell, following the news. What is Adobe Systems stock doing now? (Click here for the latest after-hours quote.)

The company behind Photoshop and Acrobat said it expects fiscal third-quarter earnings to be between 29 cents a share and 35 cents a share and for revenue to come in between $975 million and $1.025 billion. Analysts currently expect earnings of 35 cents a share on revenue of $1.01 billion, according to Thomson Reuters.

"The guidance continues to be pretty impressive. They are essentially setting some pretty high standards in terms of what they need to do for Q3 here, to surpass what was an already impressive Q2 in terms of subscription adds," Edward Jones technology analyst Josh Olson told Reuters.

For the fiscal second quarter, net income fell to $76.5 million, or 15 cents per share, from $223.9 million, or 45 cents per share, a year earlier.

Excluding items, earnings fell to 36 cents per share from 60 cents a share a year ago.

Revenue dropped some 10 percent to $1.01 billion from $1.12 billion.

Analysts had expected the company to report earnings excluding items of 33 cents a share on $1.01 billion in revenue, according to a consensus estimate from Thomson Reuters.

Adobe introduced the Web-based Creative Cloud, which includes the company's popular design titles such as Photoshop, Illustrator and Flash, in the second quarter of 2012.

Customers are responding to the Creative Cloud offering and the convenience of subscriptions, which is reflecting in the results and stock movement, said B. Riley & Co analyst Daniel Cummins.

The company said it added 221,000 paid Creative Cloud subscribers in the latest quarter, taking the total to 700,000. Adobe expects to add more Creative Cloud paid subscribers in the current quarter than in the second quarter.

Adobe said in May that upgrades for Creative Cloud would be available only through online subscriptions. The company also said it would not develop versions of the license-based Creative Suite.

A rapid adoption of a subscription model tends to lower revenue in the short term as fees are collected monthly, instead of upfront one-time payments.