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December 12, 2014

Adobe’s Q4 earnings overshadowed by Fotolia acquisition

Adobe acquires Fotolia for $800m

By Ellie Burns

Adobe has announced its financial results for its fourth quarter and 2014 fiscal year ending 28th November, 2014. Alongside reporting its year’s earnings, Adobe also announced its acquisition of Fotolia for $800m.

Adobe finished strong in the fourth quarter, achieving revenue of $1.073 billion, near the high end of the targeted range of $1.025 billion to $1.075 billion.

The company added 644 thousand net new Creative Cloud subscriptions in the quarter, with ARR growing to $1.676 billion, and total Digital Media ARR grew to $1.947 billion.

2014 fiscal year highlights included an achieved revenue of $4.147 billion, with the company generating $1.288 billion in operating cash flow during the year.

Creative Cloud subscriptions grew by more than two million to 3.454 million, with Adobe having cause to celebrate with Adobe Marketing Cloud achieving a record $1.170 billion in annual revenue. This was above the company’s target of 30%.

Many will be looking at the acquisition of Fotolia as the more important of the two announcements made b y Adobe. Fotolia will be integrated into Adobe Creative Cloud, providing Creative Cloud members with access to over 34 million images and videos. Adobe also plans to continue to operate Fotolia as a standalone stock service, accessible to anyone.

The Fotolia price tag of $800m is being called into question by those in the industry, with Ken Odeluga, a senior market analyst at City Index Singapore commenting, "This acquisition moves the group much more emphatically on to the turf of media and content companies, most particularly like Getty and Bill Gates-owned Corbis."

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"There’s a possibility Adobe could be accused of overpaying."

"Fotalia is fast-growing enough, with 3m subscribers added between 2005 and 2012, and 5m now. If each bought one pic per year at the 75c per photo price, Fotalia’s revenues would be $3.75m, making $800m a big multiple of Fotalia’s lowest-margin products."

"?Since current owner Kohlberg Kravis Roberts doesn’t disclose profits these are just my best guesses, and probably too conservative. But KKR still looks to have been paid a good premium; especially if we compare the price to the $150m KKR bought Fotalia for in 2010."

"This significant and unexpected purchase may also play to the concerns of critics of Adobe’s strategic switch in recent years–to web-based subscriptions and online software-as-a-service, moving away from traditional box licenses, aiming to attract more predictable recurring revenue."

"It’s still fair to say the decision to make this important strategic shift has not been entirely vindicated by a sustained acceleration of earnings, at least not yet. A somewhat leftfield buy like the one announced in these results can be interpreted either as a sensible refinement of Adobe’s cloud-based platform offering. Or, as a hint that the revenue mix still needs work."

PICTURE: Ken Wolter / Shutterstock.com

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