After reporting solid third-quarter earnings Thursday, Adobe Systems
Inc. hopes to crush Wall Street's long-standing concerns that the
company can't perform consistently and across all divisions.
San Jose, Calif.-based Adobe, which makes publishing and design
software for digital documents, said acquisition costs dented quarterly
profit, but revenue soared nearly 24 percent.
The announcement helped push the stock up $2.31 in after-hours
trading. Adobe shares closed Thursday at $33.65, up 12 cents from
Wednesday on the Nasdaq Stock Market.
Net income for the three months ended Sept. 1 declined 35 percent to
$94.4 million, or 16 cents a share, from $144.9 million, or 29 cents,
in the same quarter of last year. Sales were $602.19 million, up from
$487.04 million last year.
Adobe closed its $3.4 billion purchase of Macromedia Inc., which
makes Web software, in December. The company disclosed Thursday that it
spent $70 million in the third quarter on direct and indirect
acquisition costs.
Excluding costs for that acquisition, stock options and other
expenses, profit was $171.5 million, or 29 cents per share in the
previous quarter. Analysts were expecting Adobe to earn $152.52
million, or 26 cents per share, on revenue of $595.12, according to a
Thomson Financial poll.
The company reported strong sales in all four divisions.
Creative software — the historical core of Adobe, with its
flagship Photoshop — took in $328.1 million. Knowledge worker
software such as Acrobat took in $154.1 million. Enterprise software
for corporate servers took in $49.4 million. Mobile devices took in
$9.1 million.
"Our revenue is no longer dependent on any one segment as it was in
the past," Chief Executive Bruce R. Chizen told investors Thursday
during a conference call.
Piper Jaffray analyst Gene Munster called the report for the third
quarter "great news." He was impressed with revenue from creative
software, which represents nearly 60 percent of sales and includes
titles such as Illustrator and Flash.
"People were worried particularly about the creative products,"
Munster said. "These results show that, despite the fact that there's a
slowdown, demand is still strong."
Adobe generally entices consumers and corporate clients to keep
spending money by periodically upgrading applications. The danger with
this approach is software could become bloated with extra features that
slow performance and, eventually, force customers to look to
competitors.
So-called "feature bloat" is a major challenge for Microsoft Corp.'s
Windows operating system, and analysts worry that Adobe faces similar
issues.
"Adobe is a shrink-wrapped, product-cycle company that has to offer
new products every 18 months," said Analyst Trip Chowdhry of Global
Equities Research.
Adobe is gearing up to release new versions of some of its best-known products in upcoming months.
The next version of the PDF reader, Adobe Acrobat, is due out in
November. The third edition of its Creative Suite, which packages
Photoshop, Illustrator and other programs, is expected to ship in the
first half of 2007.
Adobe said profit after acquisition costs and other expenses in the current quarter would be 19 cents to 22 cents.
Not including those expenses, profit in the current quarter would be
32 cents to 34 cents. Sales are likely to be $655 million to $685
million, Adobe said.
Investors are expecting the company to earn $189.12 million, or
32 cents per share, on fourth-quarter revenue of $668.64 million.
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