Adobe's cloud gambit pays off as creative revenues soar 44%

Profile picture for user slauchlan By Stuart Lauchlan March 17, 2016
Summary:
It was a gamble when Adobe decided to go all-in for cloud delivery of its products, but it's paying off in terms of revenue and profit growth.

Shantanu Narayan

It’s working. That big roll of the dice from Adobe a couple of years back to deliver products purely on a subscription, as-a-service basis is delivering results.

First quarter numbers out yesterday reported revenue of $1.38 billion, up 25% year-on-year and the third sequential ‘revenue high’ for the firm, while profits were up from $84.9 million last year to $254.3 million.

Some numbers of note:

  • 798,000 new paying Creative Cloud (CC) subscribers in the quarter.
  • 4.252 million CC subscribers in total.
  • Over 30% of CC total subscribers are new to Adobe.
  • CC revenue up 44% year-on-year to $733 million.
  • Marketing Cloud revenue up 22% year-on-year to $377 million.
  • 51 trillion customer data transactions via the Marketing Cloud in past 12 months.
  • Document Cloud revenue was $199 million.

CEO Shantanu Narayan puts this growth down to the explosion in content creation and management and postulates a $17 billion addressable creative market for the firm:

There have never been more people creating content. Whether it’s creative professionals, photographers, students or hobbyists creating compelling images, videos, websites, or mobile applications, our opportunity is to provide them with a one-stop shop for all their creative needs.

The release of the Adobe Experience Design offerings are intended to tap into this market and to bring on board more new subscribers:

What we’re seeing as a big phenomenon in the creative market is more people doing design and prototyping. It certainly is the traditional creatives who’ve been doing design and prototyping and they may have used products like Photoshop or Illustrate or Fireworks from Adobe in the past. But I actually think that there is a new community of people, product managers, all around the world.

The way we are designing products right now is they are doing a prototyping of what that product looks like, whether that’s on mobile or on the web. This inherent need for people to have designed far more as a part of product creation will lead the Experience Design product to be used not just by our existing customers, but also by a whole new set of customers who are thinking about how do they use design to create a new generation of experience product.

He adds that digital transformation drivers are driving growth across the whole portfolio:

The solutions that we are providing I think are playing to what is a very key need in the marketplace, which is everybody is dealing with digital transformation, everybody is trying to bring their businesses online. So there is no question in the marketing side as it relates to the kinds of solutions we offer. But the demand is only getting greater in organizations around the world.

This leads to a shift in emphasis when it comes to the Adobe target audience, particularly around the Marketing Cloud:

We used to target the Chief Revenue Officer, the Chief Digital Officer, the Chief Marketing Officer within the enterprise. That has now expanded to being a C-level issue all the way up to the CEO in terms of the customer journey.

The opportunity is dramatically expanding, because this is becoming front end and center, not just for the marketing function but also at the C-level function.

Piracy

The uptake of CC subscriptions has also had a beneficial impact on piracy rates, says Narayan:

When you look at the number of new users who are part of the Creative platform, which is 30% of the people who are doing business with us, there is no question that our surveys and anecdotal evidence speak to the fact that people who may have formerly pirated or used our products casually, are paying for the service because its far more affordable.

We are seeing increased growth in international markets where there was more piracy. The reality is we still haven't offered the Creative Cloud product in China as Creative Cloud. So all of that is upside for us in terms of combating piracy. There is so much opportunity in the developed markets that’s where we focus. We continue to think as we roll it out in other markets around the world, it's going to impact [piracy rates].

A final interesting stat to come from Narayan is that 23 million Adobe IDs have come from mobile apps, seemingly indicative that mobile platforms are driving CC growth:

What we are finding is that over 20 million people are first coming to us on mobile. It is serving as a great top-of-the-funnel in terms of the new creators getting interest in Adobe. They experience our mobile apps and then they both subscribe to, as well as download, all of our desktop applications. Part of it is because they all recognize that the content that they are creating is going to be consumed in mobile. Working in groups, that’s the other thing that’s driving both tablet, mobile, as well as PC usage.

So we just look at the explosion of mobile devices and where both content is created and consumed and it’s clearly being a tailwind, not just in the digital media business, but also in the digital marketing business. Things like being able to take a picture and move that from camera into Photoshop, people just love the fact that they now have independence of where they can create content when inspiration strikes.

My take

Nicely done, with Creative Cloud clearly a winner.  I could do with a bit more drill down on the Marketing Cloud, but there will be much more to come on that next week when Adobe hosts its annual Digital Marketing Summit in Las Vegas.