Summary
Adobe's third quarter of fiscal 2023 delivered record revenue of $4.89 billion, up 10.3 percent from the prior-year quarter, or 13 percent in constant currency. GAAP diluted EPS was $3.05, up 26.0 percent. GAAP operating income was $1.70 billion, up 14.4 percent, and GAAP net income was $1.40 billion, up 23.5 percent. Non-GAAP operating income was $2.26 billion, non-GAAP net income was $1.88 billion and non-GAAP diluted EPS was $4.09. Operating cash flow for the quarter was $1.87 billion, up 9.9 percent. Capital expenditures were $91 million, down 27.2 percent. Deferred revenue at quarter end was $5.48 billion, up 10.9 percent, and remaining performance obligations were $15.72 billion, up 11.4 percent.
Margins stayed healthy. Gross margin was 88.1% for the quarter, up 0.5 percentage points, and operating margin was 34.7%, up 1.2 percentage points. Through the first nine months of fiscal 2023, revenue was $14.36 billion, up 9.8 percent, net income was $3.94 billion, up 10.2 percent, and diluted EPS was $8.59, up 13.5 percent. Nine-month operating cash flow was $5.70 billion, up 3.5 percent, while capital expenditures of $313 million were down 10.8 percent. Year-to-date gross margin was 88.0%, up 0.2 percentage points, and year-to-date operating margin was 34.2%, down 0.9 percentage points. That gap between the quarter and the nine-month stretch is a reminder that expense growth has been running ahead of revenue growth across the year, with research and development and general and administrative costs both up sharply.
Adobe's subscription engine kept producing. Digital Media net new annualized recurring revenue was $464 million in the quarter, and the company exited with Digital Media ARR of $14.60 billion, Creative ARR of $11.97 billion and Document Cloud ARR of $2.63 billion. Creative grew 11 percent year over year and Document Cloud grew 13 percent. Digital Experience subscription revenue grew 12 percent. Management credited new user adoption and strong engagement across customer segments, partly offset by foreign currency moves that cut revenue in U.S. dollar terms by $62 million in the quarter.
Capital returns stayed aggressive. Adobe repurchased roughly 2.1 million shares during the quarter, and it prepaid $1 billion under a structured stock repurchase agreement, with $333 million of that prepayment still outstanding at September 1, 2023. After quarter end, another $1 billion structured repurchase agreement was signed, leaving $2.15 billion available under the December 2020 authorization. Cash and cash equivalents ended the quarter at $6.60 billion.
Guidance for the fourth quarter of fiscal 2023 calls for Digital Media net new ARR of $520 million and non-GAAP diluted EPS of $4.10 to $4.15. Management assumes a non-GAAP tax rate of 18.5 percent and a share count of 458 million for the quarter. It says the targets factor in current macroeconomic conditions and typical year-end seasonal strength.
The overhang remains the Figma acquisition. Adobe agreed in September 2022 to buy Figma for roughly $20 billion, about half cash and half stock, and the deal is still waiting on regulatory approvals and customary closing conditions. A $1 billion reverse termination fee is owed if the transaction fails to win clearance or does not close within 18 months of September 15, 2022. Adobe has a $3.5 billion delayed draw term loan lined up for the cash portion, with no borrowings outstanding as of September 1, 2023, plus a $1.5 billion revolving credit facility and $3.65 billion of senior notes. Other named risks include inflationary pressure, higher interest rates, potential economic slowdowns or recessions, geopolitical conditions such as the Russia-Ukraine war, and foreign currency swings that may keep weighing on results in fiscal 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $4.89B | $4.82B | +1.5% | $4.43B | +10.3% |
| Gross profit | $4.31B | $4.24B | +1.6% | $3.89B | +10.9% |
| Gross margin | 88.1% | 88.1% | +0.0 pp | 87.7% | +0.5 pp |
| Sales & marketing | $1.34B | $1.34B | -0.6% | $1.27B | +5.6% |
| General & administrative | $353.0M | $357.0M | -1.1% | $319.0M | +10.7% |
| Total operating expenses | $2.61B | $2.62B | -0.3% | $2.40B | +8.7% |
| Operating income (loss) | $1.70B | $1.62B | +4.5% | $1.48B | +14.4% |
| Operating margin | 34.7% | 33.7% | +1.0 pp | 33.5% | +1.2 pp |
| Net income (loss) | $1.40B | $1.29B | +8.3% | $1.14B | +23.5% |
| Net margin | 28.7% | 26.9% | +1.8 pp | 25.6% | +3.1 pp |
| Diluted EPS | $3.05 | $2.82 | +$0.23 | $2.42 | +$0.63 |
Risks
The filing highlights generative AI, including Adobe Firefly announced subsequent to September 1, 2023, and warns that social and ethical issues, potential government regulation, costly compute, and the need for proprietary datasets and machine learning models could increase R&D costs and affect profit margin if generative AI is expanded into all product offerings. Competition includes alternatives with limited functionality at lower costs or free of charge.
Adobe has a pending approximately $20 billion acquisition of Figma, Inc., subject to regulatory approvals and customary closing conditions. The filing states Adobe must pay Figma a $1 billion reverse termination fee if the transaction fails to receive regulatory clearance or fails to close within 18 months from September 15, 2022, and MD&A notes professional and consulting fees increased in part from transaction costs associated with the planned acquisition.
MD&A states that foreign currency exchange rate fluctuations negatively impacted revenue and earnings during the nine months ended September 1, 2023 compared to the nine months ended September 2, 2022, and may continue to negatively impact financial results for the remainder of fiscal 2023. It also cites inflation, rising interest rates, potential economic slowdowns or recessions, and geopolitical pressures including the Russia-Ukraine war.
Risk Factors state that some enterprise offerings, including Adobe Experience Cloud, Adobe Experience Platform, and Enterprise Term License Agreements in Digital Media, have extended and complex multi-phased sales cycles, making close timing unpredictable. The filing also notes enterprise sales have historically been uneven, with a higher percentage of a quarter's total sales occurring in the final weeks of each quarter.
The filing says competition for experienced personnel in the information technology industry is intense and has recently intensified further in many areas where Adobe employees are located, and that hybrid or remote work has expanded the pool of competitors. It warns Adobe may experience higher compensation costs to retain senior management and experienced personnel that may not be offset by improved productivity or increased sales.
The filing details expanding global privacy and security laws, including GDPR, China's PIPL, and U.S. state laws, plus cross-border data transfer restrictions that could affect Adobe's ability to process data and implement business models. It also notes potential government regulation related to AI use and ethics may increase research and development burden and cost.
SaaS KPIs
All quarters →Creative ARR
Document Cloud ARR
Remaining Performance Obligations (RPO)
Digital Media ARR
Net New Digital Media ARR
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q3 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.