Summary
Adobe closed fiscal 2018 with a strong fourth quarter. Revenue for the quarter ended November 30, 2018 was $2.46 billion, up 22.8% from the prior-year quarter. Gross profit was $2.11 billion, up 21.3%. Operating income was $720.55 million, up 11.0%. Net income was $678.24 million, up 35.2%. Diluted EPS was $1.37, up 37.0%. Gross margin was 85.4%, down 1.1 percentage points from the prior-year quarter. Operating margin was 29.2%, down 3.1 percentage points. The quarter's margin pressure came as operating expenses grew faster than revenue, largely from headcount growth and acquisition integration costs. The quarter's revenue growth was driven by strong adoption of Creative Cloud and Document Cloud offerings.
For the full fiscal year, revenue was $9.03 billion, up 23.7%. Gross profit was $7.84 billion, up 24.5%. Operating income was $2.84 billion, up 31.0%. Net income was $2.59 billion, up 52.9%. Diluted EPS was $5.20, up 53.8%. Operating cash flow was $4.03 billion, up 38.3%. Capital expenditures were $266.58 million, up 49.7%. Deferred revenue was $3.00 billion at November 30, 2018. Subscription revenue made up the vast majority of total revenue, and the company continued to shift its business toward recurring subscriptions. Management highlighted the expansion of Digital Media and Digital Experience as the two strategic growth areas.
Operational momentum centered on annualized recurring revenue. Total Digital Media ARR reached $6.83 billion at the end of fiscal 2018, up from $5.39 billion at the end of fiscal 2017. Creative ARR was $6.03 billion, up from $4.77 billion. Document Cloud ARR was $801 million, up from $614 million. Management noted that revaluing ending ARR at fiscal 2019 currency rates would reduce Digital Media ARR to $6.71 billion, about $123 million lower. Unbilled deferred revenue backlog was approximately $5.05 billion at November 30, 2018, up from $3.94 billion a year earlier. Management said roughly 40% to 50% of the current backlog is not expected to be billed during fiscal 2019. The company's Digital Experience segment also grew, helped by the addition of Magento and Marketo.
The company also completed two large acquisitions during fiscal 2018. Marketo, a marketing cloud platform company, was acquired for $4.74 billion. Magento, a commerce platform company, was acquired for $1.64 billion. Both are being integrated into the Digital Experience segment. TubeMogul, acquired in fiscal 2017 for $560.8 million, is already integrated into Digital Experience. After the quarter, Adobe acquired Allegorithmic for approximately $105.0 million, which will join the Digital Media segment in the first quarter of fiscal 2019. These deals expand the company's presence in marketing automation and commerce.
Risks are tied to integration, currency, and tax. The Marketo and Magento integrations are still underway, and the company expects intangible amortization from those deals to increase in future periods. Foreign currency movements affected fiscal 2018 revenue, and management noted that revaluing ARR at fiscal 2019 rates would lower Digital Media ARR by about $123 million. Tax examinations remain a risk, and the company has reserved for potential adjustments. The company also faces the ongoing challenge of integrating acquisitions while maintaining growth in its core Creative Cloud and Document Cloud offerings. The company also faces the risk of foreign currency fluctuations, which can affect reported revenue and ARR. Management adjusts ARR annually to reflect material exchange rate changes.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2018 | Q3 FY2018 | QoQ | Q4 FY2017 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.46B | $2.29B | +7.6% | $2.01B | +22.8% |
| Gross profit | $2.11B | $2.00B | +5.5% | $1.74B | +21.3% |
| Gross margin | 85.4% | 87.1% | -1.7 pp | 86.5% | -1.1 pp |
| Sales & marketing | $723.6M | $670.1M | +8.0% | $574.1M | +26.0% |
| General & administrative | $212.4M | $184.1M | +15.4% | $169.6M | +25.2% |
| Total operating expenses | $1.38B | $1.28B | +8.4% | $1.09B | +27.5% |
| Operating income (loss) | $720.5M | $718.6M | +0.3% | $649.3M | +11.0% |
| Operating margin | 29.2% | 31.4% | -2.1 pp | 32.4% | -3.1 pp |
| Net income (loss) | $678.2M | $666.3M | +1.8% | $501.5M | +35.2% |
| Net margin | 27.5% | 29.1% | -1.6 pp | 25.0% | +2.5 pp |
| Diluted EPS | $1.36 | $1.34 | +$0.02 | $1.00 | +$0.36 |
Risks
Adobe completed the acquisitions of Marketo for $4.74 billion and Magento for $1.64 billion in fiscal 2018 and is integrating both into the Digital Experience segment. Integration risks include failure to achieve financial and strategic goals, disruption of ongoing business, inability to retain key personnel or customers, and additional amortization costs.
As of November 30, 2018, Adobe had $1.9 billion in senior notes and a $2.25 billion term loan outstanding, with total notes and term loan including interest of $4.54 billion. The debt may reduce financial flexibility, require cash flow for service, and impose leverage covenants; a breach could accelerate repayment.
The Tax Act enacted December 22, 2017 resulted in a transition tax expense of $176 million and long-term income taxes payable of $504 million in fiscal 2018. Certain international provisions become effective for Adobe in fiscal 2019 and could adversely affect its tax rate and cash flow.
Adobe is subject to expanding global privacy and data security laws, including GDPR and the California Consumer Privacy Act, and cross-border transfer mechanisms such as Privacy Shield and Model Clauses are being contested. These laws may affect Adobe's ability to reach customers, respond to individual rights requests, and implement business models, and may increase liability.
Adobe faces intense competition, new industry standards, evolving distribution models, and alternatives with limited functionality at lower costs or free of charge. These factors could pressure pricing and gross margins and affect renewal, upsell, and cross-sell rates.
Adobe recognizes subscription revenue ratably over terms ranging from 1 to 36 months, so most quarterly subscription revenue comes from prior agreements. Customers have no obligation to renew, and declines in new or renewed subscriptions may not be reflected in revenue until later periods.
Adobe processes and stores significant employee and customer data, most hosted by third-party service providers, and does not have redundancy for all systems; many critical applications reside in only one data center. A security incident or service interruption could compromise data, disrupt operations, and expose Adobe to liability.
Some enterprise offerings, including Adobe Experience Cloud solutions and ETLAs in Digital Media, have multi-phased and complex sales cycles, and a higher percentage of a quarter's total sales occur in the final weeks. This makes the timing of large deals difficult to predict and can cause uneven results.
Approximately 43% of total revenue comes from sales outside the Americas, exposing Adobe to foreign currency fluctuations and international economic and political conditions. In fiscal 2018, the weakening U.S. Dollar against EMEA currencies positively impacted revenue by $122.6 million, with $48.6 million in hedging gains, but future currency movements could reverse this benefit.
Adobe completed large acquisitions in fiscal 2018, increasing goodwill and amortizable intangible assets. If stock price, market capitalization, cash flows, or industry growth rates decline, Adobe could be required to record a significant impairment charge to earnings.
SaaS KPIs
All quarters →Unbilled deferred revenue backlog
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q4 FY2018 (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.