Adobe Shares Rise in Wake of 3Q Results

Shares of software maker Adobe Systems Inc. rose Tuesday, a day after reporting its third-quarter profit more than doubled on a 41 percent revenue increase.

After the markets closed Monday, Adobe executives said the company expects to sustain double-digit growth even as it winds down its biggest-ever product launch.

Adobe shares rose 71 cents, or 1.6 percent, to $43.77 in morning trading Tuesday after rising earlier as high as $44.80.

On Monday, the company reported its profit for the three months ended Aug. 31 climbed to $205.2 million, or 34 cents a share, from $94.4 million, or 16 cents a share, a year earlier.

Third-quarter sales were a record $851.7 million, up from $602.2 million in the third quarter of 2006.

Excluding some expenses, including stock-based compensation and restructuring charges related to the December 2005 acquisition of Macromedia Inc., profit was $269.4 million, or 45 cents per share, compared with $171.5 million, or 29 cents per share, in the year-ago quarter.

On that basis, analysts surveyed by Thomson Financial forecast earnings of $246.6 million, or 40 cents per share, on revenue of $789.3 million.

"It was an extraordinary quarter," said Shantanu Narayen, Adobe's president and chief operating officer. "As long as the economy continues to perform, we believe we can be a double-digit growth company for many years to come."

Adobe executives said they expect fourth-quarter revenue of $860 million to $890 million, which would set a new record. They expect net income of 35 cents to 37 cents per share, or 46 cents to 48 cents per share excluding certain one-time expenses.

Some analysts questioned how Adobe would maintain momentum after the new product pipeline ran dry.

In June, Adobe unveiled its Visual Communicator 3 software, which is designed to create video broadcasts. In July came Production Premium and Master Collection versions of its Creative Suite 3, which launched in April.

Adobe offers six versions of the suite, for $1,599 to $2,499. Customers also may buy individual upgrades on 13 standalone applications.

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.

"After May 2008, they run into tougher comparisons," said Walter Pritchard, an analyst at Cowen and Company LLC.

It will be a challenge, Pritchard said, to stay ahead of competing products from Microsoft Corp. and of open-source software that rivals Adobe mainstays such as Flash.

Adobe CEO Bruce Chizen bristled when an analyst in a conference call Monday asked how the company would sustain its growth. Chizen said the company is expanding beyond its core niche of photographers, videographers and Web designers; "Photoshop Extended" targets people in medical and dental imaging professions, and LiveCycle Enterprise Suite targets deep-pocketed corporate clients.

Adobe is also faring far better overseas than executives anticipated, which would cushion the company if the U.S. economy stumbles. Europeans purchased $281.5 million in Adobe software last quarter -- 33 percent of total revenue.

Martin Pyykkonen, analyst at Global Crown Capital LLC, said no software company could entirely evade the cyclical rhythm of product launches. But Pyykkonen, who has a $52 price target on Adobe stock, said the company wouldn't likely hit its "sweet spot" until early 2008.

"The real gurus bought CS3 right away -- the independent design houses and freelance designers," Pyykkonen said. "The corporate purchase process is slower, and the advanced amateurs who have a good digital camera will also hold off for a bit. ... Sales aren't going to fall off a cliff anytime soon."


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