Summary
Adobe reported record revenue for its fiscal 2020 second quarter ended May 29, 2020. Revenue was $3.13 billion, up 14 percent from the prior-year quarter. GAAP diluted EPS was $2.27, up 76 percent. Non-GAAP diluted EPS was $2.45. Gross margin was 86.7 percent, up 1.6 percentage points. Operating margin was 32.5 percent, up 5.1 percentage points. GAAP operating income was $1.02 billion, up 35.5 percent. GAAP net income was $1.10 billion, up 73.8 percent. Non-GAAP operating income was $1.34 billion, and non-GAAP net income was $1.19 billion. Operating cash flow was $1.18 billion, up 6.7 percent. Deferred revenue was $3.46 billion, up 10.5 percent. Remaining performance obligation was $9.92 billion, up 18.5 percent. The MD&A attributes the net income increase primarily to higher revenue and a one-time tax benefit from an intra-entity transfer of certain intellectual property rights. In April 2020, Adobe completed an intra-entity transfer of certain IP rights. The transfer did not result in a taxable gain. The company expects to make an additional change to its international trading structure during the remainder of fiscal 2020.
Digital Media ARR exiting the quarter was $9.17 billion, a quarter-over-quarter increase of $443 million. Creative ARR was $7.93 billion, and Document Cloud ARR was $1.24 billion. The MD&A notes that Digital Media ARR grew from $8.33 billion at the end of fiscal 2019. Creative ARR rose from $7.25 billion, and Document Cloud ARR rose from $1.08 billion over the same period. Digital Media segment revenue was $2.23 billion, up 18 percent year over year. Creative revenue was $1.87 billion, up 17 percent. Document Cloud revenue was $360 million, up 22 percent. Digital Experience segment revenue was $826 million, up 5 percent, and Digital Experience subscription revenue was $707 million, up 8 percent. The company attributed the gains to strong net new user growth, including demand from the work-from-home environment.
Adobe accelerated its previously stated strategy of eliminating low-margin Advertising Cloud transaction-driven offerings. The company will continue to offer its Advertising Cloud software solutions. The MD&A says the discontinuation will negatively impact Digital Experience revenue growth but should reduce related cost of revenue and improve Digital Experience gross margin percentage. The macroeconomic environment and this strategic shift impacted Advertising Cloud targeted revenue. The company also noted delays in enterprise transactions and consulting services implementations, weakness in the commercial segment that targets small- and medium-sized businesses, and a significant global decline in advertising spending. The MD&A says the pandemic has created and may continue to create significant uncertainty in the macroeconomic environment which may adversely impact results of operations.
For the third quarter of fiscal 2020, Adobe provided targets that factor in current macroeconomic conditions, continued pandemic impacts, typical Q3 summer seasonality and its updated Advertising Cloud strategy. It targets Digital Media segment revenue growth of approximately 16 percent year over year and Digital Media net new ARR of approximately $340 million. Digital Experience segment revenue is expected to be flat year over year, while Digital Experience subscription revenue is targeted to grow 5 percent, or 14 percent excluding Advertising Cloud. Non-GAAP EPS is targeted at $2.40. The company guided a share count of 485 million shares. The company withdrew its annual fiscal 2020 targets provided in December 2019. Risks include the COVID-19 pandemic, macroeconomic uncertainty, and the other factors cited in its forward-looking statements, such as failure to compete effectively, information security and privacy concerns, potential interruptions or delays in hosted services, complex sales cycles, fluctuations in subscription renewal rates, failure to develop, acquire, market and offer products and services that meet customer requirements, introduction of new technology, and risks associated with cyber-attacks.
For the six months ended May 29, 2020, revenue was $6.22 billion, up 16.4 percent. Operating cash flow was $2.51 billion, up 18.2 percent. The MD&A says net cash provided by operating activities of $2.51 billion for the six months was primarily comprised of net income adjusted for the net effect of non-cash items. Capital expenditures were $96 million in the quarter, down 34.2 percent from the prior-year quarter. Adobe repurchased approximately 2.6 million shares during the quarter. Subsequent to May 29, 2020, Adobe entered into a structured stock repurchase agreement with a prepayment of $500 million.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2020 | Q1 FY2020 | QoQ | Q2 FY2019 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.13B | $3.09B | +1.2% | $2.74B | +14.0% |
| Gross profit | $2.71B | $2.64B | +2.8% | $2.34B | +16.1% |
| Gross margin | 86.7% | 85.4% | +1.4 pp | 85.2% | +1.6 pp |
| Sales & marketing | $901.0M | $857.0M | +5.1% | $848.9M | +6.1% |
| General & administrative | $224.0M | $271.0M | -17.3% | $219.3M | +2.1% |
| Total operating expenses | $1.70B | $1.70B | -0.3% | $1.59B | +6.9% |
| Operating income (loss) | $1.02B | $937.0M | +8.4% | $749.5M | +35.5% |
| Operating margin | 32.5% | 30.3% | +2.2 pp | 27.3% | +5.2 pp |
| Net income (loss) | $1.10B | $955.0M | +15.2% | $632.6M | +73.9% |
| Net margin | 35.2% | 30.9% | +4.3 pp | 23.1% | +12.1 pp |
| Diluted EPS | $2.27 | $1.96 | +$0.31 | $1.29 | +$0.98 |
Risks
The COVID-19 pandemic has materially affected how Adobe and its customers operate, with offices temporarily closed globally, travel restrictions, and all in-person customer events in 2020 shifted to virtual-only. MD&A states Adobe experienced delays in enterprise transactions and consulting services implementations, weakness in the commercial segment targeting small- and medium-sized businesses, and a significant global decline in advertising spending that impacted Advertising Cloud revenue.
Some enterprise offerings, including Adobe Experience Cloud, Adobe Experience Platform, and Enterprise Term License Agreements, have extended and complex sales cycles that are multi-phased and unpredictable. COVID-19 restrictions have resulted in an inability to negotiate in person, and MD&A reports delays in enterprise transactions and consulting services implementations during the quarter.
The significant global decline in advertising spending as the pandemic unfolded impacted Advertising Cloud revenue. Adobe began discontinuing its transaction-driven Advertising Cloud offerings in the second quarter of fiscal 2020, which negatively impacted Digital Experience revenue growth, and expects the decision to continue to negatively impact revenue growth.
Bad debt expense increased during the three and six months ended May 29, 2020 compared to the year-ago periods primarily due to changes in the macroeconomic environment, including increased credit-related risk and volatility in market conditions. The pandemic may hurt customer creditworthiness and cause customers to delay, decrease, or cancel purchases.
Adobe completed an intra-entity transfer of certain IP rights in April 2020, recording a $224 million deferred tax asset and related tax benefit. It anticipates an additional change to its international trading structure in fiscal 2020, and the net impact is uncertain but is anticipated to adversely affect its effective income tax rate and cash flows in years beyond fiscal 2020.
Risk factors state that attempts to fraudulently induce employees or users to disclose sensitive information via phishing or other tactics are potentially compounded by the COVID-19 pandemic and the resulting shift to work-from-home arrangements for a large population of employees and contractors.
The global work-from-home operating environment has caused strain for, and may adversely impact the productivity of, certain employees. Travel and immigration restrictions may compound efforts to attract, develop, integrate, and retain highly skilled employees.
COVID-19 could potentially disrupt the supply chain of hardware needed to maintain third-party systems and services or to run Adobe's business. Adobe does not have redundancy for all systems, and many critical applications reside in only one data center.
SaaS KPIs
All quarters →Creative ARR
Document Cloud ARR
Digital Media ARR
Net New Digital Media ARR
Remaining Performance Obligations
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q2 FY2020 (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 15, 2026.