Summary
Adobe reported record second-quarter fiscal 2023 revenue of $4.82 billion, up 9.8% from the prior-year quarter. Gross profit rose 10.3% to $4.24 billion. Operating income increased 6.2% to $1.62 billion. Net income was $1.30 billion, up 9.9%, and diluted EPS came in at $2.82, up 13.3%. Gross margin improved to 88.1% from 87.7%, while operating margin slipped to 33.7% from 34.9%. For the six months ended June 2, 2023, revenue was $9.47 billion, up 9.5% from the prior-year period. The quarter shows a business still growing revenue at a healthy clip, while operating margin slipped 1.1 percentage points.
Operating cash flow was $2.14 billion in the quarter, up 4.9% from the prior-year quarter. For the six months ended June 2, 2023, operating cash flow was $3.83 billion, up 0.6% from the prior-year period. Capital expenditures were $121 million, down 4.0% from the prior-year quarter. Deferred revenue exiting the quarter was $5.38 billion, up 10.2% from the prior-year quarter, and RPO was $15.22 billion, up 10.1% from the prior-year quarter. Those balances show a subscription model with a large amount of contracted work. The MD&A notes that RPO was relatively flat compared with December 2, 2022, which suggests the sequential change was less dramatic than the year-over-year comparison.
Digital Media net new ARR was $470 million, and Digital Media ARR exiting the quarter was $14.14 billion. Creative ARR grew to $11.64 billion and Document Cloud ARR grew to $2.50 billion. Adobe said demand was strong across Creative Cloud, Document Cloud and Experience Cloud. Management framed generative AI as a major opportunity, pointing to rich datasets, foundation models and ubiquitous product interfaces. The company also repurchased approximately 2.7 million shares during the quarter. During the six months, Adobe repurchased 7.6 million shares, including 4.0 million at an average price of $348.46 through an accelerated share repurchase agreement.
Adobe raised annual targets for revenue, EPS and Digital Media net new ARR. For the third quarter of fiscal 2023, the company targets Digital Media net new ARR of $410 million and non-GAAP diluted EPS of $3.95 to $4.00. For the full fiscal year 2023, it targets Digital Media net new ARR of $1.75 billion and non-GAAP diluted EPS of $15.65 to $15.75. The targets factor in the current macroeconomic environment and summer seasonality. Adobe also set a non-GAAP effective tax rate target of 18.5% for the third quarter and the full year. The company said its market opportunity is more than $200 billion.
Risks around the quarter and the outlook include macroeconomic pressures, inflation and interest rates, foreign currency fluctuations, potential economic slowdowns or recessions, and geopolitical issues such as the Russia-Ukraine war. Adobe said foreign currency decreased revenue by $136 million in the quarter and $305 million in the six months, partly offset by hedging gains. The 10-Q also lists competition, information security and privacy, cyber-attacks, complex sales cycles, reliance on third-party business relationships, changes in subscription renewal rates, and timing of revenue recognition as risks. The planned Figma acquisition adds execution and regulatory risk. Adobe agreed to buy Figma for approximately $20 billion, half cash and half stock, and expects the deal to close in 2023. If the transaction fails to receive regulatory clearance, Adobe could owe a $1 billion reverse termination fee. The company has a $3.5 billion term loan available to help fund the cash portion, with no outstanding borrowings under it as of June 2, 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $4.82B | $4.66B | +3.5% | $4.39B | +9.8% |
| Gross profit | $4.24B | $4.09B | +3.8% | $3.85B | +10.3% |
| Gross margin | 88.1% | 87.8% | +0.3 pp | 87.7% | +0.4 pp |
| Sales & marketing | $1.34B | $1.30B | +3.4% | $1.25B | +7.9% |
| General & administrative | $357.0M | $331.0M | +7.9% | $291.0M | +22.7% |
| Total operating expenses | $2.62B | $2.50B | +4.8% | $2.32B | +13.0% |
| Operating income (loss) | $1.62B | $1.59B | +2.4% | $1.53B | +6.2% |
| Operating margin | 33.7% | 34.1% | -0.4 pp | 34.9% | -1.1 pp |
| Net income (loss) | $1.29B | $1.25B | +3.8% | $1.18B | +9.9% |
| Net margin | 26.9% | 26.8% | +0.1 pp | 26.9% | +0.0 pp |
| Diluted EPS | $2.82 | $2.71 | +$0.11 | $2.49 | +$0.33 |
Risks
Adobe is increasingly building AI into many offerings, including generative AI such as Adobe Firefly. The filing warns that AI-related social and ethical issues, potential government regulation, and additional development, testing and computing costs could harm adoption, reputation or profit margin if generative AI is expanded into all product offerings.
The pending acquisition of Figma, Inc. for approximately $20 billion is subject to regulatory approvals and closing conditions; failure to complete or integrate it could harm Adobe's financial position. Adobe would owe Figma a $1 billion reverse termination fee if the deal fails to receive regulatory clearance or does not close within 18 months.
MD&A cites increased global inflationary pressures, higher interest rates, potential economic slowdowns or recessions, and geopolitical pressures including the Russia-Ukraine war. Foreign currency exchange rate fluctuations negatively impacted revenue and earnings during the six months ended June 2, 2023 compared to the six months ended June 3, 2022 and may continue to negatively impact financial results for the remainder of fiscal 2023.
Adobe's offerings are typically subscription-based, and customers have no obligation to renew after initial terms of 1 to 36 months. If customers do not renew at the same or higher level of service, seats or duration, or renew on less favorable terms, revenue may decline, and because subscription revenue is generally recognized ratably, reductions may not be fully reflected until future periods.
Sales cycles for Adobe Experience Cloud, Adobe Experience Platform, and Enterprise Term License Agreements are multi-phased and complex, making close timing difficult to predict. Adobe also notes enterprise sales are uneven, with a higher percentage of a quarter's total sales occurring in the final weeks of each quarter.
Competition for experienced information technology personnel is intense and has recently intensified further in many areas where Adobe employees are located. Hybrid or remote work has expanded the pool of companies competing for employees, and Adobe may face higher compensation costs to retain senior management and experienced personnel.
Adobe is subject to expanding global data protection, privacy and security laws such as the GDPR, China's PIPL, the California Consumer Privacy Act and the California Privacy Rights Act. Cross-border data transfer restrictions and evolving interpretations may affect Adobe's ability to reach customers, respond to individual rights requests, and develop AI and machine learning offerings.
Adobe's effective tax rate increased by three percentage points for the six months ended June 2, 2023 compared to the six months ended June 3, 2022, partly due to a net tax expense related to stock-based compensation. MD&A also notes the U.S. Tax Act requirement to capitalize and amortize R&D costs has an adverse impact on income taxes paid, while the Inflation Reduction Act introduces a corporate book minimum tax effective fiscal 2024 and an excise tax on net stock repurchases.
Adobe has $3.65 billion of senior notes outstanding, plus a $1.5 billion revolving credit agreement and a $3.5 billion delayed draw term loan agreement, both currently undrawn, to partially fund the Figma acquisition. Debt service and covenants could reduce cash flow flexibility, and rating downgrades could increase borrowing costs or restrict future financing.
Adobe's markets are intensely competitive, with new industry standards, evolving distribution models, limited barriers to entry and frequent product introductions, including alternatives with limited functionality available at lower costs or free of charge. These factors could create downward pressure on pricing and gross margins and adversely affect renewal, upsell and cross-sell rates.
Adobe increasingly utilizes third-party distribution platforms such as Apple's App Store and Google's Play Store for certain product offerings. Platform owners have wide discretion to change pricing, terms of service and other policies, and may promote competing products, which could adversely affect Adobe's financial results.
SaaS KPIs
All quarters →Creative ARR
Document Cloud ARR
Remaining Performance Obligations (RPO)
Digital Media ARR
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q2 FY2023 (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 2, 2026.