Summary
Adobe reported record revenue of $3.22 billion for its third quarter of fiscal 2020, up 13.8 percent from the prior-year quarter. GAAP gross profit was $2.80 billion, up 15.7 percent, and gross margin expanded to 86.8%, up 1.4 percentage points. GAAP operating income rose 25.2 percent to $1.07 billion, lifting operating margin to 33.1%, up 3.0 percentage points. GAAP net income was $955 million, up 20.4 percent, and diluted EPS was $1.97, up 22.4 percent. Operating cash flow reached a record $1.44 billion, up 55.7 percent. Capital expenditures were $126 million, up 41.6 percent. Deferred revenue was $3.45 billion, up 5.8 percent, and remaining performance obligations were $10.34 billion, up 17.9 percent.
For the first nine months of fiscal 2020, revenue was $9.44 billion, up 15.5 percent from the prior-year period. GAAP gross profit was $8.15 billion, up 17.1 percent. GAAP operating income was $3.02 billion, up 31.5 percent. GAAP net income was $3.01 billion, up 43.3 percent, and diluted EPS was $6.20, up 45.5 percent. Operating cash flow for the nine months was $3.95 billion, up 29.6 percent, and capital expenditures were $316 million, up 5.3 percent. Gross margin for the nine months was 86.3%, up 1.2 percentage points, and operating margin was 32.0%, up 3.9 percentage points.
Digital Media remained the main growth engine. Digital Media ARR exited the quarter at $9.63 billion, up 24 percent year over year on a constant-currency basis, and increased $458 million quarter over quarter. Creative ARR was $8.29 billion, and Document Cloud ARR was $1.34 billion. Digital Media segment revenue grew 19 percent year over year, with Creative revenue up 19 percent and Document Cloud revenue up 22 percent. Digital Experience segment revenue grew 2 percent, while Digital Experience subscription revenue rose 7 percent. Excluding Advertising Cloud, Digital Experience subscription revenue grew 14 percent. The company continued to wind down its transaction-driven Advertising Cloud offerings, which weighed on Digital Experience revenue growth. By geography, revenue grew 14 percent in the Americas, 13 percent in EMEA, and 14 percent in APAC.
Management provided fourth-quarter fiscal 2020 targets. Total revenue is targeted at $3.35 billion. Digital Media segment revenue is expected to grow 18 percent year over year, with $540 million of net new Digital Media ARR. Digital Experience segment revenue is expected to be flat, and Digital Experience subscription revenue is targeted to grow 1 percent, or 12 percent excluding Advertising Cloud. Non-GAAP diluted EPS is targeted at $2.64, with a non-GAAP tax rate of 10 percent and 485 million shares. The guidance factors in current macroeconomic conditions, typical year-end seasonal strength, and the strategic shift related to Advertising Cloud. Adobe also said it will host a financial analyst meeting on Dec. 10 to provide an overview of strategy and financial targets for fiscal year 2021.
Risks remain elevated. The COVID-19 pandemic continues to create uncertainty, and Adobe cited 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. Foreign currency movements reduced revenue by $14 million in the quarter and $78 million year to date, with hedging adding a $1 million negative impact in the quarter and an $11 million positive impact year to date. The company also flagged tax matters, including California legislation that is anticipated to increase its California tax and adversely impact effective tax rates for the three-year period beginning in fiscal 2021, and an additional change to its international trading structure in the fourth quarter of fiscal 2020. Bad debt expense increased due to specific reserves for customers more impacted by the macroeconomic environment. Adobe repurchased approximately 1.5 million shares during the quarter, and subsequent to quarter end it entered a structured stock repurchase agreement with an $850 million prepayment, leaving $2.05 billion under its May 2018 authority.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2020 | Q2 FY2020 | QoQ | Q3 FY2019 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.23B | $3.13B | +3.1% | $2.83B | +13.8% |
| Gross profit | $2.80B | $2.71B | +3.1% | $2.42B | +15.7% |
| Gross margin | 86.8% | 86.7% | +0.0 pp | 85.3% | +1.4 pp |
| Sales & marketing | $892.0M | $901.0M | -1.0% | $812.3M | +9.8% |
| General & administrative | $230.0M | $224.0M | +2.7% | $219.3M | +4.9% |
| Total operating expenses | $1.73B | $1.70B | +1.9% | $1.56B | +10.5% |
| Operating income (loss) | $1.07B | $1.02B | +5.2% | $853.8M | +25.2% |
| Operating margin | 33.1% | 32.5% | +0.7 pp | 30.1% | +3.0 pp |
| Net income (loss) | $955.0M | $1.10B | -13.2% | $792.8M | +20.5% |
| Net margin | 29.6% | 35.2% | -5.6 pp | 28.0% | +1.6 pp |
| Diluted EPS | $1.97 | $2.27 | -$0.30 | $1.61 | +$0.36 |
Risks
The pandemic has materially affected how Adobe and its customers operate, with offices closed, travel restricted, and all in-person customer events shifted to virtual-only through June 2021. MD&A notes continued delays in enterprise transactions and consulting implementations, weakness in the commercial segment targeting small- and medium-sized businesses, and a significant global decline in advertising spending.
Adobe's enterprise offerings, including Experience Cloud, Experience Platform, and ETLAs, have multi-phased and complex sales cycles, and COVID-19 restrictions have resulted in an inability to negotiate in person. MD&A reports continued delays in enterprise transactions and consulting services implementations due to economic challenges with enterprise customers in certain verticals.
The pandemic has caused a significant global decline in advertising spending and weakness in the commercial segment targeting small- and medium-sized businesses. Bad debt expense increased in Q3 FY2020 and the nine months ended August 28, 2020 primarily due to specific reserves for customer categories more impacted by the macroeconomic environment.
California enacted legislation limiting utilization of research and development tax credits for a three-year period beginning in fiscal 2021, which Adobe anticipates will increase California tax and adversely impact its effective tax rate. Adobe also plans an additional international trading structure change in Q4 fiscal 2020 that is anticipated to adversely affect its effective income tax rate and cash flows in years beyond fiscal 2020.
Adobe has previously disclosed unauthorized parties gaining access to and misusing some systems and software to access end users' authentication, payment, and personal information. The shift to work-from-home during COVID-19 potentially compounds risks from phishing and other tactics, and critical vulnerabilities in popular offerings could lead to liability, lost customers, and margin pressure.
Adobe faces expanding global privacy and security laws, including GDPR, NISD, and the California Consumer Privacy Act, plus increasing complexity for cross-border personal data transfers after judicial decisions affecting Privacy Shield and Model Clauses. Noncompliance could lead to fines, sanctions, and changes to Adobe's business models.
Adobe's markets are characterized by intense competition, new industry standards, evolving distribution models, limited barriers to entry, and frequent product introductions, including lower-cost or free alternatives. These factors could create downward pressure on pricing and gross margins and adversely affect renewal, upsell, and cross-sell rates.
Adobe's subscription customers have no obligation to renew after the initial term and may renew at lower levels, for fewer seats, or for shorter durations, and some customers can cancel early. Renewal rates may decline due to COVID-19, economic downturns, or dissatisfaction, and subscription revenue is recognized ratably so reductions may not be reflected until future periods.
Adobe depends on senior management and highly skilled personnel, and the global work-from-home environment has caused strain and may adversely impact productivity. Travel and immigration restrictions during COVID-19 may compound efforts to attract, develop, integrate, and retain employees, and competition for technology talent is intense.
Adobe relies on data centers managed by itself and third parties, does not have redundancy for all systems, and many critical applications reside in only one data center. Interruptions, migration issues, or COVID-19 supply chain disruptions could impair delivery of Creative Cloud, Document Cloud, and Experience Cloud and lead to customer loss and liabilities.
Adobe is winding down transaction-driven Advertising Cloud offerings, which continued to negatively impact Digital Experience revenue growth in Q3 FY2020. Digital Experience revenue was $838 million, up 2% year-over-year, while subscription revenue grew 7% and excluding Advertising Cloud grew 14%.
Adobe generates approximately 42% of total revenue from sales outside the Americas and is exposed to foreign currency fluctuations. In Q3 FY2020, foreign currency movements decreased revenue by $14 million, and for the nine months ended August 28, 2020, they decreased revenue by $78 million, partially offset by hedging.
SaaS KPIs
All quarters →Creative ARR
Document Cloud ARR
Digital Media ARR
Remaining Performance Obligation (RPO)
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q3 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.