Dark clouds for Adobe as profits slide by 46 percent

Adobe has posted a 46 percent year-on-year drop in net profits, raising doubts over its strategy of shifting customers to cloud subscriptions.

The company has spent the past couple of years attempting to wean customers off one-off purchases of software and move them on to Creative Cloud subscriptions.

However, this appears to be coming at the expense of profitability, with Adobe blaming higher operating expenses and weaker profit margins for the sharp dip in profits.

Revenue from Adobe's digital media business, which includes Creative Cloud, fell by more than 2 percent in the third quarter, even though the company added around half a million subscribers. The company says it has 2.8 million Creative Cloud customers, up from 2.3 million in the previous quarter.

Adobe recently introduced lower-cost subscription packages for photographers, which include Photoshop and Lightroom.

Some analysts have suggested that while Adobe has enjoyed success converting enterprise customers to Creative Cloud, small businesses and individuals are more reluctant to sign up for rolling subscriptions, and are sticking with older versions of products such as Photoshop and InDesign.

Adobe remains confident in its long-term strategy, pointing out that 63 percent of its revenue for Q3 was recurring, rather than one-off purchases. "Adoption of Creative Cloud and Adobe Marketing Cloud continues to accelerate,” said Shantanu Narayen, the company's CEO.

"We are the leader in both of these high-growth categories and have a rapidly growing pipeline, setting us up for a strong finish to the year in Q4."

This article originally appeared at pcpro.co.uk