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Was Adobe Systems Incorporated (ADBE)’s Five-Year High a Flash in the Pan?

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Tomorrow, Adobe Systems Incorporated (NASDAQ:ADBE) will release its latest quarterly results. Lately, investors have faced two very different visions of the software company, with backward-looking results pointing to steep contractions in revenue and earnings but the share price suggesting optimism about the company’s future.

For many casual investors, Adobe’s most commonly used products might seem like pure loss leaders, as many users don’t pay for its ubiquitous PDF reader. But although some recent moves with its higher-value software packages are hurting revenue in the short run, they could pay off for the company quite nicely over time. Let’s take an early look at what’s been happening with Adobe Systems Incorporated (NASDAQ:ADBE) over the past quarter and what we’re likely to see in its report.

Stats on Adobe Systems

Analyst EPS Estimate $0.34
Change From Year-Ago EPS (43%)
Revenue Estimate $1.01 billion
Change From Year-Ago Revenue (10.4%)
Earnings Beats in Past 4 Quarters 3

Source: Yahoo! Finance.

Can Adobe Systems keep its earnings up?
Analysts have been guardedly optimistic about Adobe Systems Incorporated (NASDAQ:ADBE)’s earnings over the past few months, keeping their views on the May quarter unchanged but raising their full-year fiscal 2013 estimates by $0.03 per share. The stock has kept moving higher, rising 3% since mid-March but giving up more substantial gains over the past few weeks.

Adobe Systems Incorporated (NASDAQ:ADBE)The big strategic move that Adobe completed during the quarter was its decision to abandon its permanent-software-license model as of May 1, instead choosing to offer cloud-based subscriptions for its creative suite of software. The company has been making a transition toward the subscription-based model for about a year, and so far, the results have been impressive, with the company last quarter saying it expected 1.25 million paid subscribers by the end of the year. In the short run, revenue was bound to decline as users who were previously paying for software that would last for years instead make much shorter-term commitments, but the benefit for Adobe Systems Incorporated (NASDAQ:ADBE) is that those users will be making those smaller payments repeatedly every time they renew their subscriptions.

But Adobe has also taken steps to bolster its presence in the social and mobile spaces. The company bought app-developer Thumb Labs last month, adding on to its purchase of social-media platform Behance back in December. Then, just a few weeks ago, Adobe bought Ideacodes, a creative consulting agency that should be able to assist Adobe Systems Incorporated (NASDAQ:ADBE) in making its mobile shift. If the moves accomplish Adobe’s purpose of enhancing collaboration among the creative customers on which the company relies, then they could represent a big win for Adobe.

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