Adobe Says Q4 Will Be Light

However, third-quarter earnings meet expectations

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

Software maker Adobe Systems (NASDAQ:ADBE) was up slightly Thursday despite a modest earnings report Wednesday evening that included lowered expectations for its fiscal fourth quarter.

Adobe’s third-quarter earnings were up 3.2% to $201.4 million (40 cents per share), with adjusted earnings of 58 cents matching Wall Street expectations. Revenues of $1.08 billion were just slightly under consensus estimates.

ADBE also said adjusted earnings will be between 53 cents to 58 cents a share and revenues will come to $1.075 billion to $1.125 billion. The Wall Street consensus was for earnings of 67 cents and revenues of $1.2 billion.

The main reason for the weakness is that Adobe has been transitioning its key products, such as PhotoShop and Creative Suite, moving more of its software to the cloud and mobile platforms. It is also shifting toward offering subscriptions.

So why is this resulting in weaker quarterly results? Interestingly enough, the shift to Adobe’s new offerings have been quicker than expected, which has put pressure on margins.

But at least gauging by Thursday’s stock movement, investors aren’t immediately rattled. Then again, Adobe is making the necessary moves to evolve its products. More importantly, it should have more stable ongoing revenues because of the focus on subscriptions.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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