Summary
Adobe's first quarter of fiscal 2017 delivered strong top-line and bottom-line growth. Revenue was $1.68 billion, up 21.6% from the prior-year quarter. Gross profit was $1.44 billion, up 21.9%. Operating income was $469.0 million, up 52.4%. Net income was $398.4 million, up 56.7%. Diluted EPS was $0.80, up 60.0%. Gross margin was 85.9%, up 0.2 percentage points. Operating margin was 27.9%, up 5.6 percentage points. Management notes that the prior-year quarter had an extra week (14 weeks vs 13 weeks), which favorably impacted fiscal 2016 results. That calendar difference makes the current quarter's growth rates look even stronger.
Cash flow and recurring revenue metrics also improved. Operating cash flow was $730.4 million, up 46.8%. Capital expenditures were $30.9 million, down 33.1%. Deferred revenue (current portion) was $1.99 billion, up 27.1%. The company's Digital Media ARR grew to $4.25 billion at the end of the first quarter of fiscal 2017, up from $3.99 billion at the end of fiscal 2016. Creative ARR was $3.76 billion, up from $3.52 billion. Document Cloud ARR was $493 million, up from $472 million. Management says the ARR growth came primarily from strong adoption of Creative Cloud and Document Cloud subscription offerings.
Operationally, Adobe continues to push its two strategic growth areas: Digital Media and Digital Marketing. Creative Cloud remains the centerpiece of Digital Media. Management says Creative Cloud adoption has transformed the business model and should drive higher long-term revenue growth by expanding the customer base and keeping existing users current. The company acquired TubeMogul in December 2016 and began integrating it into the Digital Marketing business in the first quarter of fiscal 2017. Management expects the addition of TubeMogul and sustained demand across Marketing Cloud solutions to drive revenue growth in future years. Revenue from perpetual licensing of Creative products is now immaterial to the business.
The filing highlights several risks. Foreign currency fluctuations, particularly the relative strength of the U.S. Dollar against EMEA currencies, reduced revenue, though hedging gains offset some of that impact. The company also faces uncertainty from income tax examinations and a credit facility that contains a leverage ratio covenant. Management says it was in compliance with all covenants as of March 3, 2017. The filing references forward-looking statements and risk factors in Part II, Item 1A. Management reiterates long-term plans for Digital Media and Digital Marketing.
Capital returns remained active. In the first quarter of fiscal 2017, the Board of Directors approved a new stock repurchase authority to repurchase up to $2.5 billion in common stock through the end of fiscal 2019. During the quarter, the company repurchased approximately 2.2 million shares at an average price of $107.54 through structured repurchase agreements. Subsequent to March 3, 2017, the company entered into a structured stock repurchase agreement with a $300 million prepayment. These actions are designed to return value to stockholders and minimize dilution from stock issuances.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2017 | Q4 FY2016 | QoQ | Q1 FY2016 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.68B | $1.61B | +4.6% | $1.11B | +51.6% |
| Gross profit | $1.44B | $1.39B | +3.8% | $942.4M | +53.3% |
| Gross margin | 85.9% | 86.5% | -0.7 pp | 85.0% | +0.9 pp |
| Sales & marketing | $520.3M | $495.0M | +5.1% | $392.7M | +32.5% |
| General & administrative | $150.8M | $148.5M | +1.6% | $145.1M | +3.9% |
| Total operating expenses | $975.3M | $919.6M | +6.1% | $769.4M | +26.8% |
| Operating income (loss) | $469.0M | $472.3M | -0.7% | $173.0M | +171.1% |
| Operating margin | 27.9% | 29.4% | -1.5 pp | 15.6% | +12.3 pp |
| Net income (loss) | $398.4M | $399.6M | -0.3% | $84.9M | +369.4% |
| Net margin | 23.7% | 24.9% | -1.2 pp | 7.7% | +16.0 pp |
| Diluted EPS | $0.80 | $0.79 | +$0.01 | $0.17 | +$0.63 |
Risks
Adobe's hosted and subscription offerings, including Creative Cloud and Document Cloud, are generally month-to-month or one year, and customers have no obligation to renew. The company states it cannot accurately predict future renewal rates, and a decline could reduce future revenue.
Adobe faces intense competition, evolving industry standards, and frequent new product introductions, including alternatives with limited functionality available at lower costs or free of charge. The company states these factors could create downward pressure on pricing and gross margins and adversely affect renewal and upgrade rates.
Adobe is subject to expanding privacy and data protection laws globally, including cross-border transfer requirements. The company disclosed that in the last year at least one EU regulator determined that, with respect to a small number of vendors processing certain EU employee data, Adobe did not implement appropriate means quickly enough, resulting in a small fine.
Adobe states that certain parties have in the past breached certain of its data security systems and misused systems and software to access end users' authentication and payment information. It also notes critical vulnerabilities may be identified in its applications, which could lead to liability or limit its ability to deliver products and services.
A portion of subscription revenue each quarter comes from recognition of deferred revenue from prior agreements, so a decline in new or renewed subscriptions may not be immediately reflected in reported results but could reduce future quarters. Current deferred revenue was $1.99 billion, up 27.1% versus the prior-year quarter.
Sales cycles for enterprise offerings such as Adobe Marketing Cloud and ETLAs in Digital Media are multi-phased and complex, and a higher percentage of quarterly sales occur in the final weeks of each quarter. The company states this makes it difficult to predict when a given sales cycle will close.
Adobe acquired TubeMogul in December 2016 and began integrating it in Digital Marketing; TubeMogul contributed $32.1 million to the increase in Marketing Cloud revenue in the first quarter of fiscal 2017. The company warns that acquisitions involve risks including difficulty integrating operations and technologies, inability to retain key personnel or customers, and failure to achieve financial and strategic goals.
Most lines of business rely on hardware and services hosted by Adobe or third parties, and the company does not have redundancy for all systems; many critical applications reside in only one data center. A disruption or failure at a third-party hosting or content delivery provider could prevent delivery of hosted offerings and reduce revenue.
Some Adobe products rely on third-party cookies for advertising effectiveness, performance measurement, and fraud detection. The company states that increased use of methods, software, or applications that block cookies, including browsers set to block third-party cookies by default, could harm its business.
Adobe generates approximately 42% of total revenue from sales outside the Americas. In the three months ended March 3, 2017, the relative strength of the U.S. Dollar against EMEA currencies caused revenue in EMEA measured in U.S. Dollar equivalents to decrease as compared to the year-ago periods, though hedging gains partially offset the impact.
A significant portion of foreign earnings is earned by Irish subsidiaries, and Adobe provides U.S. income taxes on foreign subsidiary earnings unless considered permanently reinvested. Changes in tax rules or repatriation of previously reinvested earnings could adversely affect its effective tax rate or result in other costs.
Uncertainty about economic and political conditions could cause customers to delay or reduce technology, advertising, or marketing spending, resulting in extended sales cycles and increased price competition. Adobe also notes government spending cuts could reduce revenue from government entities.
SaaS KPIs
All quarters →Creative ARR
Document Cloud ARR
Total Digital Media ARR
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q1 FY2017 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 12, 2026.