Adobe's CS Update to Generate New Revenue Drivers (ADBE)

Morgan Stanley is out with a report today which discusses the implications of Adobe Systems' ADBE recent Creative Suite (CS) software update, as well as its plans to start releasing CS updates on a more regular basis – every 24 months with mid-term releases in between. Analysts believe that more regular CS product intervals and subscription pricing will reduce Adobe's revenue volatility between cycles. The report points out that new revenue drivers for Adobe come from raised upgrade pricing from CS version 4 and earlier, while users of version 5 pay discounted upgrade pricing. CS 5.5, the newest version, offers better ways to build tablet apps for Photoshop, as well as other features and toolsets designed for mobile computing. Also new for CS 5.5 is the formal introduction of subscriptions, which Morgan analysts expect to have limited reach due to their relatively high price points. The subscriptions come in the form of a one-year or month-to-month plan, the latter being higher priced. Analysts believe subscriptions will appeal to the minority of users who upgrade every CS cycle. Adobe may experience some near-term revenue risk, the report states, but the subscription revenue will likely be neutral to additive over the medium- to long-term. Morgan Stanley analysts give ADBE a price target of $34.15. It is currently trading at $34.44.