ADOBE SYSTEMS INC. $71.02 - Nasdaq symbol ADBE

ADOBE SYSTEMS INC. $71.02 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 497.4 million; Market cap: $35.8 billion; No dividends paid) makes a range of software that lets computer users create, edit and share documents in the popular PDF format. As well, graphic designers use its software to create print publications and web pages.

In its fiscal 2014 second quarter, which ended May 30, 2014, Adobe earned $186.3 million, up 1.9% from $182.9 million a year earlier. Earnings per share rose 2.8%, to $0.37 from $0.36, on fewer shares outstanding. Revenue gained 5.7%, to $1.07 billion from $1.01 billion.

The improved results are mainly because Adobe is signing up more subscribers to its Creative Cloud package of photo editing and desktop publishing programs. The company added 464,000 Creative Cloud customers in the quarter and currently has a total of 2.3 million. It now expects to end fiscal 2014 with 3.3 million users, up from its earlier target of 3.0 million.

Selling these programs as ongoing subscriptions instead of one-time purchases hurts the company’s short-term growth, but it should provide more predictable revenue streams. Subscriptions and support services now account for 55% of Adobe’s revenue.

The company continues to spend a high 20% of its revenue on research, which will help it compete in its rapidly changing industry. However, the stock now trades at 60.2 times the $1.18 a share that Adobe will likely earn in fiscal 2014. That’s a high p/e ratio for a company that mainly serves customers in cyclical businesses like publishing.

Adobe is still a hold.

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