According to analysts, the global digital media and the total addressable market for the Adobe Creative Cloud system is projected to grow to around $21 billion to $48 billion by 2018. Adobe continues to expand its offerings within the segment and is thus delivering strong financial results each quarter. It recently announced its third quarter results, and this was the tenth successive quarter where it reported revenue growth.
Adobe's third quarter revenues grew 20% over the year to $1.46 billion, ahead of the market's projections of $1.45 billion. EPS of $0.75 was also ahead of the Street's estimated $0.72 per share for the quarter. Clearly Adobe has shown how to successfully migrate from a license-based model to a subscription SaaS-based model.
For the quarter, Subscription revenues grew 40% over the year to $1.17 billion and services and support revenues were flat at $0.11 billion. Product revenues fell 34% over the year to $0.18 billion.
Among other business segments, revenues from Digital Media came in at a record high of $990 million with Creative revenue growing 39% over the year. At the end of the quarter, Digital Media Annualized Recurring Revenue came in at $3.7 billion. Adobe Marketing Cloud also achieved record revenues at $404 million, growing 10% over the year. But competition in the Marketing Cloud segment is heating up. Earlier this year, Salesforce.com expanded its presence in the marketing cloud space with the $2.8 billion acquisition of Demandware. Oracle too has been building its marketing arsenal with acquisitions including AddThis, Responsys, DataLogix, BlueKai, and Eloqua over the past few years. But Adobe has an advantage as Gartner admits that it is the leader in the Magic Quadrant for Digital Marketing Hubs.
For the current quarter, Adobe expects to earn revenues of $1.55 billion-$1.60 billion with an EPS of $0.83-$0.89. The market was looking for revenues of $1.575 billion with an EPS of $0.78.
Adobe Expands Creative Offerings
Adobe is expanding its digital offerings by including features like Virtual Reality (VR), 3D, motion graphics and character animation within its Creative and Marketing cloud services. The new features will be supported by tools to deliver, measure, and monetize TV and film content across multiple screens. The features in the next release of their products will include auto-aware VR that is able to seamlessly detect and apply the correct setting to stereoscopic and monoscopic media. The service already includes video playback support, dynamic ad insertion, and content protection via Adobe's Virtual Reality Digital Rights Management.
Within 3D content, Adobe is now showcasing a 3D rendering engine that will increase the pace and efficiency of 3D content generation. The platform now allows artists to create editable 3D elements such as text and shape layers intuitively from within After Effects CC with new Cinerender technology from MAXON. Adobe is also improving the live motion-capture tool for Puppet creation and animation with Character Animator through integrated functionality between Adobe Photoshop CC and Adobe Illustrator CC.
The Adobe Creative Cloud will now allow post-production teams to move freely across applications without interrupting the creative flow. The real-time playback in a new After Effects video preview architecture will also allow users to play raw footage in real-time. The Premiere Pro CC now provides HDR10 metadata support for editing and delivering HDR10 for new HDR-enabled TVs and displays.
Within analytics, Adobe Analytics for Video will allow users to measure streams instead of just video starts and stops and thus deliver a more comprehensive view of how videos are consumed. The system also allows for collaboration of teams through Team Projects that integrates collaboration features including version control and smart conflict resolutions, and allows editors and artists to work simultaneously.
Adobe is also expanding its video experience offering. Earlier this week, it announced a tie-up with Foster City-based Conviva, a leader in over-the-top (OTT) experience management for media companies. Through the agreement, Adobe will be able to closely monitor the video quality of ads served via Adobe's ad insertion platform to help Adobe Primetime customers maximize consumer engagement and revenue.
Its stock is trading at $107.47 with a market capitalization of $53.55 billion. It has recovered significantly from the 52-week low of $71.27 it had fallen to in February this year.