by Jay Vleeschhouwer
The following are several items from the 144-page 2010 10-K report that seemed interesting or incremental. The Adobe text is in italics followed by some of my comments on the text.
Creative Solutions. The increase [in Creative Solutions segment revenues] was driven largely by a 23% increase in both Creative Suites and Photoshop point product revenue as compared to the prior year. The overall number of units licensed increased 23% when compared to fiscal 2009. Unit average selling prices, excluding large enterprise license agreement (“ELA”) deals, remained relatively stable during fiscal 2010 as compared to fiscal 2009.
From this we can deduce that Creative Suite-only revenues were approximately $1.3 billion in FY10, which would be the highest fiscal year to date since Creative Suite launched in 2003. (However, 4Q10 Creative Suite revenues do appear to have been slightly less than the 4Q07 revenues for CS3.) Creative Suite revenues had been up by 7% in FY08 and then down by 15% in FY09. The “stable” ASP [average selling price] is historically not atypical, though there was perhaps some expectation of at least a modest increase, given the Creative Suite mix and new unit price changes for some CS5 configurations vs. CS4.
The cumulative Creative Suite revenues to date are more than $5.4 billion.
In addition, we can deduce from the 10-K text that Photoshop family revenues were in the neighborhood of $460-$470 million, including a substantial incremental contribution from Photoshop Lightroom. Full standalone Photoshop (including incremental sales of the high-end Photoshop Extended) is probably back to around the pre-recession levels, while the smaller (by revenue) consumer-oriented Photoshop Elements may not have gotten there yet during FY10.
We should keep in mind too that the total revenue “footprint” of Photoshop should also include the imputed value of Photoshop within Creative Suite (that’s probably the equivalent of another couple of hundred million dollars, at least). The magnitude of Creative Suite revenues is roughly three times that of the suites revenue for Autodesk, the point being that while the addressable markets and users are not precisely equivalent. As the highest volume supplier in technical software there should be a good incremental revenue opportunity for Autodesk’s new emphasis on the suite strategy.
Subscription revenue. Of the $386.8 million and $74.6 million in subscription revenue for the fiscal years 2010 and 2009, respectively, approximately $309.1 million and $22.2 million, respectively, is from our Omniture segment with the remaining amounts representing our other business offerings.
The remaining non-Omniture subscriptions revenues therefore were about $77.7 million, or just 2.2% of total revenues minus total Omniture revenues. (In FY09 the non-Omniture subscription revenues were about $52 million.) This relatively low proportion of such recurring revenues remains an important opportunity for Adobe in terms of growth and business model evolution through, for instance, the provision of new services to its sizeable installed base. In principle, as Adobe ramps up the CS Live services, form instance, assuming a reasonable adoption within the eligible part of the Creative Suite base, such services could become an eight-figure business over time, thus adding at least a couple of points to the revenue CAGR.
Reporting segments. Effective in the first quarter of fiscal 2011, we plan to modify our segments due to changes in how we operate our business. We intend to split our prior Creative Solutions segment into two new segments: Digital Media Solutions and Creative and Interactive Solutions. Digital Media Solutions will contain our imaging and video products for professionals and hobbyists, whereas Creative and Interactive Solutions will contain our Creative Suite family of products including our professional page layout and Web layout products. We also plan to merge our former Platform segment into the new Creative and Interactive Solutions segment to better align our focus with market trends and our opportunities. In addition to our business unit reorganization, we plan to move several products to different businesses. Our Scene7 products will be moved from our Creative Solutions business to our Omniture business; our ColdFusion products will be been moved from our Platform business to our Print and Publishing business; and our Presenter product that is part of our Adobe Connect offering will be moved from our Knowledge Worker business to our Print and Publishing business.
Assuming there will be revised historical data available for the new segments, we can then fine-tune the amount of revenues for some of the specific products that have been moved around (as has occurred on prior occasions when the segments have been redone). In the meantime, the inferred revenues for Scene7 are about $40 million (± a few million) and for ColdFusion in a range of around $40-$50 million (if right, then not much changed from the levels prior to the acquisition of Macromedia). .
Mobile revenues. Platform revenue includes revenue related to our Mobile client products of $25.7 million, $51.3 million and $113.1 million for fiscal 2010, 2009 and 2008.
All else being equal, the Mobile revenue decline over the past two years was the equivalent of (2%) to the overall corporate growth rate. (FY08 was the peak year, as Adobe has since superseded the former royalty-based model.) The revenue effect of the expansion of the mobile market will be felt more substantially elsewhere – and across multiple products – for Adobe.
Restructuring. During fiscal 2010, we continued to implement restructuring activities under this plan. We vacated approximately 50,000 square feet of sales and or research and development facilities in Australia, Canada, Denmark and the U.S.
Marketing. Advertising expenses for fiscal 2010, 2009 and 2008 were $65.9 million, $67.0 million and $67.1 million, respectively.
Marketing spending related to product launches and overall marketing efforts to further increase revenue was up 3% in FY10, after having been down by 4% in FY09.
Non-GAAP reconciliation items. Amortization expenses for purchased technology and other intangible assets are expected to be $102.3 million in FY11 and $72.1 million in FY12, as compared with $156.7 million in FY10.