Adobe Systems Earnings Call Insights: Creative Cloud and Attracting New Users
Adobe Systems (NASDAQ:ADBE) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Walter Pritchard – Citigroup: Shantanu and Mark, great disclosure and I think everybody appreciates all the transparency there, so just wanted to highlight that. Question I had around the Creative Cloud move. It does seem like customers are enduring somewhat of the price increases they move to these new offerings, and I’m wondering if you could talk about where customers are seeing the additional value that’s driving them to move, how much of it is sort of a care that you’re offering in terms of value versus the stick in terms of practices you may be using especially around, enterprise licensing to encourage the change?
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Shantanu Narayen – President and CEO: With respect to the transparency as I think both Mark and I have said right through, we want to make sure that we provide you with the information, while we go through this transition. As it relates to the cloud, I think people are really seeing the benefits of always having access to the applications and the latest applications as I mentioned we’ve actually given three updates already, we’ve introduced new services like sync and share, and we’ve really just started, in terms of the innovation. So, I think it’s just a better way to stay current. I think people see the promise of having their assets in a place which they can get location and dependent. So there really are no stick so to speak right now, it’s all about seeing that the future of creation is being delivered through the Creative Cloud.
Walter Pritchard – Citigroup: Then Mark, I didn’t hear you talk about; you gave a lot of detail on fiscal ’13. I didn’t hear you talk about cash flow, I know there is probably also some cash flow impact here based on the fact that most of these are monthly build, but maybe you could help us understand sort of where we should be thinking about cash flow for fiscal ’13.
Mark Garrett – EVP and CFO: The great news is we have a terrific cash balance, I talked about that. From a cash flow perspective, Walter, it is going to model as it has, somewhat closely with non-GAAP net income. So you should expect that cash flow will be less as we go through this pivotal year in 2013 than it has been in say 2012.
Attracting New Users
Peter Goldmacher – Cowen and Co: It was interesting to hear your reconciliation from a Shrink-Wrap subscriptions and on the revenue you think you gave up. How do you guys think about drawing in new users that maybe have been priced out of the products because of the upfront costs we sell high and new users you are getting because of a more affordable price point.
Shantanu Narayen – President and CEO: Peter, we certainly are seeing new customer adoption I think we referred to that statistic last time in terms of the number of new users because it is more affordable and. I think we’ve heard that over 30% at times would not have subscribed or would not have gone to the perpetual version, but are finding that the Creative Cloud is the best option to go. I think actually there is again a lot of headroom (ahead) as we start to combat piracy as well and start to get those customers as part of the Creative Cloud. So at this point we’re clearly attracting new customers I think Mark referred to the fact that for the first of many years we’ve actually grown units for the Creative business which is exciting to see, and it just again speaks to the innovation that the teams are providing. Maybe to add to Walter’s question as well. We do have information on all of the apps that are being downloaded and the new HTML application that we have created are seeing quite a bit of downloads we are certainly seeing the flagship products or FlashPro PhotoShop, Illustrator and InDesign, but the new products that we’re delivering as part of the Creative Cloud, whether it’s Lightroom or whether it’s Edge and Muse are also seeing fairly significant adoption, which I think bodes well for us.
Peter Goldmacher – Cowen and Co: Just following-up on that, so, when you are selling these new products and some of these new products are integrated with the Digital Marketing cloud, I know its early days, but how helpful is it to you to leverage that Creative brand when you’re selling the Digital Marketing products. Are we early in that part of the sales cycle or do your Digital Marketing customers already have a positive view of Adobe and that’s a catalyst to sell that Digital Marketing stuff?
Shantanu Narayen – President and CEO: I think it’s a great question, Peter, and there’s no question that we are seeing quite a bit of synergy between the Creative Cloud and the Marketing Cloud. The two places where we see that a lot is in the web experience part of Digital Marketing that business continues to be on fire as people re-platform their online businesses. The second area where we see that is, if you have a Chief Revenue Officer, who is thinking Digital Publishing suite. Traditionally it was just magazines that we’re buying in Digital Publishing suite now you are seeing insurance companies, financial services, retail and travel, all seeing it. So, I think Matt and his organization are really able to go in and paint a picture of the entire content lifecycle, and it’s clearly working. It’s also working for us the reverse way, which is if you our Content Management solution you want to make sure that you have the latest version of the Creative products, so that it can automatically put data. As I said, we’ll be also releasing Digital Asset Management that ties them together.
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