But not a single app is sold on a subscription basis, excluding things like on-line magazine subscriptions. Apple Inc. (NASDAQ:AAPL) now reports all digital content sales revenue, including iTunes, the App stores and traditional software media in its iTunes/Software/Services (iTSS) category. In Q1 iTSS made $4.1 billion in revenue, about what Adobe Systems Incorporated (NASDAQ:ADBE) expects for its entire fiscal year.
At WWDC Apple announced a beta of iWork in iCloud, but it isn’t clear whether Apple even intends to charge for the service.
Although Microsoft is still in the process of establishing its mobile device app and content stores, most of its extensive software offerings are available for digital download. Where Apple Inc. (NASDAQ:AAPL) has tended to shy away from web apps, Microsoft has embraced them fully with Office 365 as well as its developer tools for cloud-based apps, Windows Azure.
Office productivity suites such as Office 365 have relatively modest computing requirements, so they’ve become a popular focus of web app development. But Microsoft hasn’t tried to cajole Office users to abandon conventional licensing for cloud subscriptions by pulling the plug on licensed apps. Given what happened with Xbox One DRM, I doubt that Microsoft has the stomach for any more consumer backlash.
In its last Q1 earnings report, Microsoft didn’t have a lot to say about Office 365, except that it had “momentum,” a word that frequently stands in for less flattering characterizations in MS-speak. I doubt that Office 365 subscription revenue will be reported by Microsoft any time soon. But for Microsoft this is okay. It’s understood that MS isn’t betting big on 365.
Adobe Systems Incorporated (NASDAQ:ADBE), however, is betting big on the Cloud, and Adobe investors owe it to themselves to make the best assessment they can of the success of this bet. Adobe has made this even more difficult by a recent reorg, so now there’s effectively no way to perform year-over-year comparisons by segment. The best investors can do is continue to track Adobe’s fundamentals and watch for a trend, either up or down. Both operating income and net income were up slightly from last quarter, but I don’t consider the change large enough to be significant. However, if income begins to recover to 2012 levels in Q3 and Q4, that would be a good sign that Adobe’s Big Bet has begun to pay off.
The article Adobe’s Candy Coated Earnings Report originally appeared on Fool.com and is written by Mark Hibben.
Mark Hibben has a position in Apple. The Motley Fool recommends Adobe Systems (NASDAQ:ADBE) and Apple. The Motley Fool owns shares of Apple and Microsoft. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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