Adobe (ADBE) Beats on Earnings, to Acquire Fotolia for $800M

Shares of the Adobe Systems (ADBE) were up +5.26 or +7.54 percent to $75.00 per share in this morning's premarket, after the company released better than expected earnings yesterday after the close. In addition to beating earnings estimates, the company announced it was acquiring stock-photo web company Fotolia for $800 million. Adobe stock closed at $69.74 per share, down -0.11 or -0.16 percent in Thursday's regular trading session.

San Jose, California based Adobe Systems has been at the forefront of computer software application development and marketing since its founding in 1982.
The company has a large array of products including desktop and server software, internet web design programs, document and video formats and web content management software. The company also sells its services through Creative Cloud, a subscription service that offers subscribers access to Adobe software such as Photoshop and Illustrator for a monthly fee.

Adobe released adjusted earnings of $0.36 per share on revenue of $1.07 billion for the company's fiscal fourth quarter, analysts were expecting the company to report earnings of $0.30 per share on revenue of $1.06 billion.

The company reported that its Creative segment annualized recurring revenue increased to $1.676 billion with revenue from Adobe Marketing Cloud taking in $330 million as a result of increased bookings. Digital Media recurring revenue came to $1.947 million.

Adobe's unbilled backlog deferred revenue increased to $1.7 billion with deferred revenue making a new record at $1.155 billion. For the full fiscal year, Adobe reported GAAP earnings of $0.50 per share on revenue of $4.147 billion. Non-GAAP earnings came to $1.29 per share.

Adobe Chief Financial Officer Mark Garrett stated that, "2014 was a pivotal year for Adobe as we completed our business model transition," He continued, "In 2015 we expect revenue and earnings to grow sequentially every quarter during the year."

One of the drivers for the increase in earnings was the addition of 644,000 new subscribers to Creative Cloud in the fourth quarter, bringing the total number of subscribers to the service to 3.45 million. A possible addition to the company's Creative Cloud could be Adobe's acquisition of Fotolia, a stock-photo web company Adobe is buying from Kohlberg, Kravis, Roberts & Co. LLP (KKR) for $800 million.

The deal, which was announced after the earnings release, will close by the second half of Adobe's new fiscal year with Fotolia's Chief Executive Oleg Tscheltzoff staying on board to head his team in Adobe's digital media division.

As to adding Fotolia to Creative Cloud, Adobe stated that, "It's premature to outline the exact type of integration and pricing we could offer, however we do anticipate this will be a value-add service and there will be extra cost associated with using it for Creative Cloud members".

Adobe stock is gaining significantly before this morning's opening, a sign that investors are confident on both future earnings and optimistic on the Fotolia acquisition. The stock is just shy of its all-time high of $74.69 and could easily test the level later today.

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Published on Dec 12, 2014
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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