Shares of Adobe Systems have rallied by more than 35 percent since we added the stock to the Wealth Builders Portfolio, fueled by strong uptake for the company’s Creative Cloud suite of design programs.
Whereas customers paid a lump sum to purchase Adobe Systems’ Creative Suite programs, the rollout of Creative Cloud marks the shift to a software-as-a-service (SAAS) model where customers pay a monthly subscription fee to access these programs via the Internet.
The first quarter marked the first time that revenue from Creative Cloud exceeded sales of the company’s legacy perpetual licensing software. Meanwhile, the number of Creative Cloud users totals 1.844 million, putting the company roughly halfway to its full-year goal of 4 million paying customers.
Adobe Systems’ transition to an SAAS model has a number of advantages.
Rather than creating new applications and functionalities and then bundling them into a new version of Creative Suite, Adobe Systems can introduce incremental enhancements to its products and immediately deliver those changes to the entire Creative Cloud user base.
In other words, every Creative Cloud subscriber will always have the newest version of Adobe Systems’ products with the most up-to-date features. In the past, not every customer would upgrade to the latest release of Creative Suite, preferring to save money and stick with older versions.
By transitioning to this new model, Adobe Systems swaps periodic, lumpy revenue for the consistency of recurring subscriptions.
Management expects the migration of customers from legacy products to the Creative Cloud to accelerate in the back half of the year, when the firm will discontinue sales of Creative Suite 6 and ramp up promotion of its software-as-a-service solution.