The “New” Adobe Systems Incorporated (ADBE) Looks Good Ahead of Earnings

How do you measure success?
Mark Garrett, Adobe Systems Incorporated (NASDAQ:ADBE)’s executive vice president and CFO, said that 2013 would prove to be a “stronger and more predictable” year in terms of recurring revenue with higher long-term growth. The company, however, didn’t guide as if it expects a robust first quarter — at least not when compared to prior estimates for Q1 2012. Likewise, non-GAAP earnings-per-share estimates of $0.26 were lowered by almost 50% when compared to non-GAAP EPS of $0.54 for Q1 2012. But investors weren’t too bothered by this.

Management turned the focus on what still matters here the most, which is subscription growth and how well the model is still transitioning. To that end, the company said it expects to end fiscal year 2013 with 1.25 million paid Creative Cloud subscriptions, which is a pretty aggressive goal, especially since Adobe ended 2012 with 326,000 subscribers. This means that management expects to add another 924,000 this year, which amounts to 231,000 per quarter.

Given Adobe’s willingness to disclose subscriptions on a per-week basis, guidance suggests that the company expects to add just fewer than 20,000 subscribers per week, which is double the number it produced in the fourth quarter. Adobe has high subscription goals, but don’t mistake this for magic or just wishful thinking.

Management knows it has an ace up its sleeve in its 1 million free members. If we assume that the company is able to convert 50% of its free users to paid subscribers, then these goals are not that aggressive after all. Investors, meanwhile, should watch these metrics very closely to fully understand how well management is doing.

What of the stock?
Though the shares have been on a considerable run, the stock still doesn’t look too expensive. And if Adobe Systems Incorporated (NASDAQ:ADBE) can figure out a way to push its Digital Marketing business — to the extent that it can get companies such as Google and Facebook Inc (NASDAQ:FB), which are trying to grow mobile ads — Adobe’s long-term growth potential can become pretty significant.

The article The “New” Adobe Looks Good Ahead of Earnings originally appeared on Fool.com.

Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Adobe Systems, Apple, Facebook, and Google. It owns shares of Apple, Facebook, Google, and Microsoft.

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