Adobe’s 3Q Profit Beats Predictions

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Layoffs are good for stock prices… Couldn’t resist.

Quotes are from Adobe’s 3Q Profit Beats Predictions: Financial News - Yahoo! Finance

Adobe’s 3Q Profit Surges 117 Percent, Beating Expectations

SAN FRANCISCO (AP) — Adobe Systems Inc. third-quarter profit more than doubled, setting a record and beating Wall Street expectations as the company comes off its biggest-ever software launch.

Even analysts who’ve followed Adobe for years said third-quarter results were a pleasant surprise.

“This kind of high upside doesn’t happen too often with big-revenue companies,” said analyst Gene Munster of Piper Jaffray & Co., who said much of the quarter’s success can be traced back to strong early sales of Creative Suite 3, which Adobe launched in April and includes updates to some of the company’s most popular programs, such as Photoshop and Illustrator.

“CS3 is a game-changing product,” Munster said.

CS3 is a killer method of tailoring Adobe’s flagship products to consumers, while bundling the less-compelling products in as a ‘fire for effect’ strategy to saturate the market.

If you’re not part of the bundled software, however, I get the feeling that your product is really left out in the cold to fend for itself. That would be the much-rumored ‘tiering’ method of product management.

Higher tier, higher profit products make the grade, and the lower tiers are… hanging on. It’s smart business to cut away the dead wood, which is what made the dysfunctional accounting for RoboHelp so compelling earlier this month.

Last month, Adobe introduced a beta update to its Flash Player 9, which includes support for the H.264 video standard used in Blu-ray and HD DVD high-definition DVDs and other satellite and cable TV set-top boxes. At the time, Adobe anticipated the final version of the update would be available in the fall.

This introduction was definitely strategic, placed right before the much-hyped Microsoft Silverlight release.

Walter Pritchard, an analyst at Cowen and Company LLC, said Adobe’s biggest challenge is staying ahead of competing products from Microsoft Corp. and of open-source software that rivals Adobe mainstays such as Flash.

We were talking about this last month, and even back in July examining where Captivate will be in a few years when Flash has more competition. As discussed, Silverlight is going to be very competitive, and even DivX has a killer HD format, according to the Wings and Beer update.

To maintain its stock price, Pritchard said, the company must maintain scorching growth rates as the product launch tapers off.

“After May 2008, they run into tougher comparisons,” Pritchard said. “The biggest challenge is then being able to continue this kind of momentum and not have investors think it has peaked.”

There’s going to be a lot of pressure on all divisions at Adobe to perform. This will be interesting to watch.

If stock prices start slipping, where are they going to make their cuts? I am predicting that it’s now or never for RoboHelp; if they don’t perform by mid-2008, resources could be pulled off for other products that make a higher profit.

Analysis - Lower Tiered Adobe Products

RoboHelp isn’t a wide market standard like Acrobat or MSFT Word however it does have a valued niche and market dominance. Even Adobe Contribute, what I’m writing this with, is bundled in the Web Premium and Web Standard bundles.

So the Help Authoring pie which has smaller pieces (not a growth market) has even smaller ones if RoboHelp’s developers aren’t compelling enough with their release to convince anyone to upgrade or… switch away from the competing products.

Will it make the grade? As long as people buy it. Will they buy it? If they already use it. But new markets are going to face a tough sell with the tech support focus MadCap’s taking. I remember having potential partners and clients doing pre-sales support calls just to see whether we knew what was up with the software or not.

RoboHelp right now is not convincing me that while Vivek and others insist they’re the market leader, they’re really not able to back that statement up. Some of the market intel on RH7 doesn’t show anything (revealed so far) forthcoming but features that the competition already has.

Well, at least what data I’m publishing right now. There are some tricks to RH7, we’ll see what makes the cut.

On the other hand…

eLearning focused products like Adobe Captivate have a great area to develop that is only growing in size. Schools from grade school on up are focusing on game-based learning, and Flash, even with competition, is formidable. Look at the adoption of Dance Dance Revolution in Physical Education, and more game-based learning a/k/a ‘Serious Games’ were a large focus at this year’s Game Developer’s Conference in San Francisco.

The past five years have been good to RoboDemo / Captivate, and it’s a wise decision to pair Contribute, an entry level Web 2.0 engine with the eLearning heavy Captivate. The Flash Player update will give Captivate some much needed content repurposing legs. And there are plenty of other smaller products that can enhance this eLearning to make it really shine.