Summary
Adobe closed fiscal 2016 with strong top-line and bottom-line growth. Fourth-quarter revenue was $1.61 billion, up 23.1% from the prior-year quarter. Gross profit was $1.39 billion, up 26.0%. Operating income was $472.28 million, up 62.6%. Net income was $399.61 million, up 79.4%. Diluted EPS was $0.80, up 81.8%. Gross margin was 86.5%, up 1.9 percentage points. Operating margin was 29.4%, up 7.1 percentage points. For the full fiscal year, revenue was $5.85 billion, up 22.1%. Gross profit was $5.03 billion, up 24.3%. Operating income was $1.49 billion, up 65.4%. Net income was $1.17 billion, up 85.7%. Diluted EPS was $2.32, up 87.1%. Operating cash flow was $2.20 billion, up 49.7%. Full-year capital expenditures were $203.80 million, up 10.2%. Deferred revenue, current portion, was $1.95 billion, up 35.7%.
The operational story centers on recurring revenue. Digital Media ARR reached $4.01 billion at the end of fiscal 2016, up from $2.88 billion a year earlier. Creative ARR was $3.54 billion, up from $2.50 billion. Document Cloud ARR was $475 million, up from $385 million. Unbilled deferred revenue backlog was approximately $3.4 billion as of December 2, 2016, up from $2.9 billion a year earlier. About 40% to 50% of that backlog is not expected to be billed during fiscal 2017. Adobe also completed the acquisition of TubeMogul for approximately $549 million in cash after the quarter ended. TubeMogul will be integrated into the Digital Marketing segment in the first quarter of fiscal 2017. Fiscal 2016 was a 53-week year, with an extra week in the first quarter.
Guidance context is limited but forward-looking. Management expects TubeMogul and sustained demand across Marketing Cloud solutions to drive revenue growth in future years. The company will integrate TubeMogul in the first quarter of fiscal 2017. Revaluing ending ARR for fiscal 2016 using currency rates at the beginning of fiscal 2017, Digital Media ARR would be $3.99 billion, about $27 million lower than reported. Adobe expects its existing cash, investments, and credit facility to be sufficient for working capital and operating needs over the next twelve months. It also plans to continue investing in short-term and long-term investments, venture capital, facilities expansion, and computer systems.
Risks remain. Foreign currency reduced fiscal 2016 revenue by $93.1 million, with hedging offsetting $18.8 million, for a net impact of $(74.3) million. The Euro and British Pound accounted for $50.2 million and $36.2 million of the EMEA headwind, respectively. Tax risks include potential changes in tax rates and outcomes of examinations. Other risks include revenue recognition estimates, returns and price protection, business combinations, goodwill impairment, and income taxes. The company was in compliance with all covenants as of December 2, 2016. It has a $1 billion credit line with no outstanding borrowings and $1.9 billion in senior notes outstanding. No cash dividends are anticipated.
Capital allocation remains active. Cash and investments totaled $4.76 billion as of December 2, 2016, with about 83% held by foreign subsidiaries. During fiscal 2016, Adobe repurchased approximately 10.4 million shares at an average price of $97.16, for a total cost of $1.01 billion. Subsequent to the quarter, the company entered into a $200 million structured stock repurchase agreement and the Board approved a new $2.5 billion repurchase program through the end of fiscal 2019.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2016 | Q3 FY2016 | QoQ | Q4 FY2015 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.61B | $1.46B | +9.9% | $1.31B | +23.1% |
| Gross profit | $1.39B | $1.26B | +10.4% | $1.11B | +26.0% |
| Gross margin | 86.5% | 86.2% | +0.4 pp | 84.6% | +2.0 pp |
| Sales & marketing | $495.0M | $477.5M | +3.7% | $441.5M | +12.1% |
| General & administrative | $148.5M | $143.7M | +3.3% | $134.1M | +10.8% |
| Total operating expenses | $919.6M | $891.9M | +3.1% | $814.6M | +12.9% |
| Operating income (loss) | $472.3M | $369.3M | +27.9% | $290.4M | +62.6% |
| Operating margin | 29.4% | 25.2% | +4.1 pp | 22.2% | +7.1 pp |
| Net income (loss) | $399.6M | $270.8M | +47.6% | $222.7M | +79.4% |
| Net margin | 24.9% | 18.5% | +6.4 pp | 17.1% | +7.8 pp |
| Diluted EPS | $0.79 | $0.54 | +$0.25 | $0.44 | +$0.35 |
Risks
The invalidation of the U.S.-EU and U.S.-Swiss Safe Harbor frameworks has forced Adobe to establish alternate means for transferring EU personal data, and at least one regulator fined Adobe for not implementing those alternate means quickly enough for a small number of vendors processing EU employee data. Ongoing uncertainty around Privacy Shield and expanding privacy laws could increase compliance costs and liability.
Adobe has previously disclosed breaches of its data security systems and misuse of its systems and software to access end users' authentication and payment information. Actual or perceived vulnerabilities in popular offerings with large user bases could lead customers to stop using products, reduce or delay purchases, or use competing products.
A portion of subscription revenue each quarter comes from recognition of deferred revenue from prior subscription agreements, so a decline in new or renewed subscriptions may not immediately appear in reported results but could reduce revenue in future quarters. Total deferred revenue was $2.01 billion as of December 2, 2016, up 36% from November 27, 2015, and current deferred revenue was $1.95 billion, up 35.7% versus the prior-year quarter.
Enterprise offerings such as Adobe Marketing Cloud and ETLAs in Digital Media have multi-phased, complex sales cycles, and a higher percentage of a quarter's total sales historically occurs in the final weeks of each quarter. This makes it difficult to predict when a given sales cycle will close and could cause uneven results.
Subsequent to December 2, 2016, Adobe acquired TubeMogul for approximately $549 million in cash and will integrate it into the Digital Marketing segment in the first quarter of fiscal 2017. Integration risks include difficulty integrating operations and personnel, retaining key customers and employees, and failing to realize anticipated benefits.
During fiscal 2016, the U.S. Dollar strengthened against the Euro and British Pound, negatively impacting EMEA revenue measured in U.S. Dollar equivalents. Total revenue impact from foreign currency was negative $93.1 million in fiscal 2016, partially offset by $18.8 million of hedging gains.
Adobe is subject to continual examination of income tax returns by the IRS and other authorities, with focus on intercompany transfer pricing. The effective tax rate decreased by approximately nine percentage points in fiscal 2016 versus fiscal 2015, primarily due to tax benefits from completed examinations and the permanent extension of the U.S. Research and Development credit, and future tax changes could adversely affect the rate.
Adobe depends on senior management and highly skilled personnel, and competition for information technology talent is intense in many areas where employees are located. Failure to retain, hire, and motivate key personnel or to maintain corporate culture could harm long-term strategic planning and execution.
SaaS KPIs
All quarters →Unbilled deferred revenue backlog
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q4 FY2016 (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.