Adobe Reports Drop in Digital Media Business Revenue in Q3

Photoshop maker Adobe Systems Inc's forecast disappointing revenue for this quarter and reported lower quarterly sales at its digital media business, which includes the Creative Cloud software suite.

Adobe shares fell nearly 5 percent in extended trading.

The company said it expected adjusted profit of 26-32 cents per share on revenue of $1.03 billion-$1.08 billion for the quarter ending November.

Analysts on average were expecting an adjusted profit of 31 share on revenue of $1.09 billion, according to Thomson Reuters I/B/E/S.

"I think the market has come to expect perfection from this company and today was not perfect," Edward Jones technology analyst Josh Olson told Reuters.

Revenue from Adobe's digital media business, which includes the Creative Cloud and document services, fell about 2.4 percent to $621.4 million in the third quarter ended Aug. 29.

Adobe has been switching to web-based subscription for its Creative Suite 6 from traditional box licenses to attract more predictable recurring revenue.

Online subscriptions let customers access the latest versions of a host of software for a monthly payment.

The number of paid subscribers for Creative Cloud - including Photoshop, Illustrator and InDesign software - rose by 502,000 to 2.81 million.

(Also see: Adobe Refreshes Creative Cloud Video Suite Interface and Adobe Anywhere)

"We have been accustomed to 35 percent positive surprises in terms of the subscription gains and this was really in line with expectations," Olson said.

He added that Adobe had achieved a lot of the "low-hanging fruit" in shifting its existing customer base to the cloud, but the challenge now was to convince the more "resistant" customers, such as small businesses and individuals.

Revenue from Adobe's digital marketing business, which offers marketing campaign management and analytics tools, increased 8 percent to $336.6 million.

Total revenue rose 1 percent to $1.01 billion, while analysts had expected $1.02 billion.

Net income fell to $44.7 million, or 9 cents per share, from $83 million, or 16 cents per share, a year earlier.

Excluding items, Adobe earned 28 cents per share.

Adobe shares gained 18 percent this year up to Tuesday's close of $70.73 on the Nasdaq.

© Thomson Reuters 2014