Adobe Misfires on All Cylinders

Day by day, the world is getting more digital. You'd think that Adobe Systems (NAS: ADBE) would be perfectly positioned to reap the benefits of that trend, as the company makes a living from digital content creation tools and online marketing services. But the long-expected boost keeps sliding away.

In Monday's first-quarter report, Adobe hit Street targets dead-on with $0.57 of adjusted earnings per share on sales of $1.05 billion. For the next quarter, management sees largely flat results, which still would be in line with analyst estimates.

That's fine and dandy, except that Adobe is launching a major upgrade to its Creative Suite products in the second quarter. Major revisions provide huge growth catalysts for Adobe and any other software developer you'd care to mention. And management sure likes to shine that light on Creative Suite 6; CEO Shantanu Narayen kept telling analysts on the earnings call just how amazing the early buzz is for the new suite.

And I'm starting to wonder whether Adobe really does have a major ace up its sleeve here... or perhaps just a jack of clubs.

In other significant news, Adobe is moving away from one-off product sales and into more of a subscription model. Customers will have a choice between paying a large lump sum for perpetual product licenses, or smaller monthly fees to keep the tools licensed and running. The subscription plans also come with cloud-computing extras such as online storage and a central font repository, earning the package the buzzword-loaded moniker, "Adobe Creative Cloud."

Yes, it's Photoshop-as-a-service -- cloud computing for Picasso and Spielberg. That sounds like another catalyst for growth, baked right into the first one. And yet, management isn't expecting fireworks.

This is particularly troubling since rivals Apple (NAS: AAPL) and Avid Technology (NAS: AVID) are doing their best to drive new business to Adobe. Apple arguably destroyed the value of its Final Cut video editing software last year by removing tools that are crucial to professional video editors. At the same time, the new screen in the iPad 3 makes Adobe's Photoshop Touch sing. And Avid is letting all of this opportunity slip right through its fingers -- giving Adobe a chance to show off its own butterfingers.

I'm closing my bullish CAPScall on Adobe at this point. I'm out of patience with its repeated inability to seize a plethora of opportunities. Foolish analysts have found an much more promising stock for your portfolio. Learn all about The Motley Fool's Top Stock for 2012 in a special report -- free for a limited time.

At the time thisarticle was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Adobe Systems. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple and a diagonal call position in Adobe Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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