Summary
Adobe closed fiscal 2019 with a strong fourth quarter. Revenue for the quarter ended November 29, 2019 was $2.99 billion, up 21.4% from the prior-year quarter. Full-year revenue reached $11.17 billion, up 23.7%. Gross profit for the quarter was $2.54 billion, up 20.6%, while the gross margin slipped to 84.9%, down 0.5 percentage points. Operating income rose to $969.93 million, up 34.6%, and the operating margin expanded to 32.4%, up 3.2 percentage points. Net income was $851.86 million, up 25.6%, and diluted EPS was $1.74, up 27.0%. The quarter showed healthy demand across the business, but the gross margin decline is worth watching.
Cash generation also improved. Operating cash flow for the quarter was $1.38 billion, up 24.2%. For the full year, operating cash flow was $4.42 billion, up 9.7%. Capital expenditures were $94.10 million in the quarter, up 50.4%, and $394.48 million for the full year, up 48.0%. Deferred revenue stood at $3.50 billion as of November 29, 2019. Remaining performance obligations were $9.82 billion. The balance sheet carries a working capital deficit of $1.70 billion, which management attributes to the reclassification of debt to current liabilities. Adobe intends to refinance its Term Loan and 2020 Notes on or before their due dates. That refinancing is a key item to monitor.
Operational momentum centered on Digital Media. Total Digital Media ARR ended fiscal 2019 at $8.40 billion, up from $6.71 billion at the end of fiscal 2018. Creative ARR was $7.31 billion, up from $5.92 billion. Document Cloud ARR was $1.09 billion, up from $791 million. Management credits stronger new user adoption of Creative Cloud and Adobe Document Cloud. The Digital Experience segment also contributed, with growth tied to Marketo Engage, Magento Commerce, Adobe Experience Manager, and Adobe Campaign. Adobe acquired Marketo for $4.73 billion and Magento for $1.64 billion in fiscal 2018, and it acquired the remaining interest in Allegorithmic for $106.2 million in fiscal 2019. These deals expand the company's reach in marketing, commerce, and 3D authoring.
Guidance context from management is qualitative. Adobe expects continued demand across its Experience Cloud portfolio to drive revenue growth in future years. On taxes, management does not anticipate that final and proposed tax regulations will have a material impact on fiscal 2020 operating results. However, the net impact of international tax law changes is uncertain and is expected to adversely affect the effective income tax rate and cash flows in years beyond fiscal 2020. Other risks include tax examinations, intercompany transfer pricing, foreign currency fluctuations, and debt refinancing.
The quarter and full year show Adobe's recurring revenue model still producing solid growth. Revenue, operating income, net income, and EPS all rose at double-digit rates. ARR growth supports the subscription base. Still, gross margin pressure, a working capital deficit, and tax and currency headwinds temper the picture. The company's ability to refinance debt and manage international tax changes will matter for fiscal 2020 and beyond.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2019 | Q3 FY2019 | QoQ | Q4 FY2018 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.99B | $2.83B | +5.6% | $2.46B | +21.4% |
| Gross profit | $2.54B | $2.42B | +5.0% | $2.11B | +20.6% |
| Gross margin | 84.9% | 85.3% | -0.4 pp | 85.4% | -0.5 pp |
| Sales & marketing | $801.6M | $812.3M | -1.3% | $723.6M | +10.8% |
| General & administrative | $225.9M | $219.3M | +3.0% | $212.4M | +6.4% |
| Total operating expenses | $1.57B | $1.56B | +0.4% | $1.38B | +13.4% |
| Operating income (loss) | $969.9M | $853.8M | +13.6% | $720.5M | +34.6% |
| Operating margin | 32.4% | 30.1% | +2.3 pp | 29.2% | +3.2 pp |
| Net income (loss) | $851.9M | $792.8M | +7.5% | $678.2M | +25.6% |
| Net margin | 28.5% | 28.0% | +0.5 pp | 27.5% | +0.9 pp |
| Diluted EPS | $1.73 | $1.61 | +$0.12 | $1.36 | +$0.37 |
Risks
The Tax Cuts and Jobs Act international provisions effective in fiscal 2019 are expected to require changes to Adobe's international trading structure and are anticipated to adversely affect its effective income tax rate and cash flows in years beyond fiscal 2020. MD&A reports the effective tax rate increased by approximately one percentage point in fiscal 2019 to 8%.
Working capital was a $1.70 billion deficit as of November 29, 2019, down from a $555.9 million surplus, primarily due to reclassifying $3.15 billion of Term Loan and 2020 Notes to current liabilities. Adobe intends to refinance the Term Loan and 2020 Notes on or before their due dates, but failure to do so could strain liquidity.
Adobe has previously disclosed unauthorized parties gaining access to systems and software to obtain end users' authentication, payment and personal information. Security vulnerabilities in products, systems or supply chain could lead to reduced revenue, liability claims and reputational harm.
Approximately 42% of total revenue comes from outside the Americas, and fiscal 2019 revenue was reduced by $138.0 million from foreign currency movements, partially offset by $39.9 million of hedging gains. Brexit and trade protectionism are cited as additional international risks.
Adobe continues to integrate Marketo and Magento, acquired in fiscal 2018, and fiscal 2019 cost of revenue rose 40% partly from amortization of intangibles from those acquisitions. Amortization of intangibles in operating expenses increased 92% in fiscal 2019.
Enterprise offerings such as Adobe Experience Cloud, Adobe Experience Platform and ETLAs have multi-phased, complex sales cycles, and a higher percentage of quarterly sales occur in the final weeks of each quarter. This makes sales timing difficult to predict and can cause uneven results.
Subscription customers have no obligation to renew and may cancel under certain circumstances, and renewal rates can decline due to satisfaction, pricing, competition or economic downturns. Adobe's subscription revenue is recognized ratably, so reduced renewals may not be reflected until future quarters.
Expanding privacy laws such as GDPR, NISD and the California Consumer Privacy Act create new compliance obligations and potential liability, and cross-border data transfer mechanisms are being contested. These laws may affect Adobe's ability to reach customers and implement business models, including for AI and machine learning.
Competition is intense, with alternatives with limited functionality available at lower costs or free of charge, and competitors may have greater financial, technical, sales and marketing resources. Adobe must continue to innovate and integrate AI/ML features such as Sensei to maintain its market position.
Adobe's brands may be harmed if its products or platforms are used to create or disseminate misleading content, including DeepFakes, or for illicit or objectionable ends. This could lead to defamation, publicity, privacy or personal injury claims and loss of user confidence.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q4 FY2019 (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.