Interest in Adobe CS3 booms, Photoshop World sells out

Creative professionals, eager for a glimpse of the new Adobe suites in action, flocked in herds to the Boston, Mass.-based Photoshop conference earlier this week, selling out the show for the first time in its history. Researchers from investment research firm PiperJaffray were on hand for the event and spoke one-on-one with 73 professionals regarding their spending intentions for 2007 versus last year.

"Surprisingly, nearly all of the 73 Adobe customers in our sample said they expect to move to a CS3 suite in CY07," Sr. Analyst Gene Munster wrote in a report summarizing the firm's findings. "Specifically, 96 percent said they expect to move to CS3 this year, which is up from the approximately 70 percent we have heard in our previous three surveys."

Munster partially attributed the sharp uptick in demand to Adobe's "impressive integration" of applications within its new Creative Suite product lines, saying it appears to be increasing near-term buying intentions amongst potential buyers.

Of particular interest to would-be Adobe investors, added the analyst, is that many Adobe customers who intend to move to CS3 this year are currently users of individual "point products." Therefore, with single product customers buying up into the higher priced suites, Adobe's per customer revenues should increase significantly.

"Of the 73 Adobe users in our survey, 3 percent currently use CS1, 44 percent are on CS2 and 52 percent are on Photoshop," he wrote. "In other words, more than half of the customers that intend to move to one of the CS3 suites are currently on point products."

As a benchmark, Munster noted that the average selling price (ASP) on an upgrade from Photoshop to CS3 Web or CS3 Design is $1,300, while the avg ASP for an upgrade from CS2 to CS3 Web or CS3 Design is only $340. "So those that move from Photoshop will pay nearly 3x what CS2 customers will pay," he told clients.

On average, creative professionals polled by PiperJaffray said they plan to spend 32 percent more with Adobe in 2007 than they did in 2006. That figure is up significantly from the firm's previous two surveys conducted before the announcement of CS3, when Adobe's customers said they were expecting to spend just 10 to 20 percent more in 2007.

"We are currently modeling for 15 percent creative segment revenue growth in 2007," said Munster. "The increased overall spending expectations are no doubt a result of the higher intention by customers to move to a CS3 suite during the year."

In concluding his report from Photoshop World, the PiperJaffray analyst offered investors four compelling reasons to buy Adobe shares. Among them, he said, are expectations for a solid May quarter, conservative Street models for fiscal 2007, and pent-up demand for CS3 amongst creative professional customers. He also added that shares of the San Jose-based company are currently trading at a discount relative to previous upgrade cycles.

Munster's bullish outlook on the software maker includes an Outperform rating and $51 price target.

Amazon.com is offering slight discounts on pre-orders for all Creative Suite 3.0 products.