In the second quarter of fiscal 2020 ending May 29, Adobe achieved record second-quarter revenue of $3.13 billion representing 14 percent year-over-year growth. Diluted earnings per share were $2.27 on a GAAP basis, and $2.45 on a non-GAAP basis.
The GAAP operating income in the second quarter was $1.02 billion, and non-GAAP operating income was $1.34 billion. GAAP net income was $1.10 billion, and non-GAAP net income was $1.19 billion. Adobe repurchased approximately 2.6 million shares during the quarter and its cash flows from operations were $1.18 billion.
Who is Shantanu Narayen?
In the capacity of a CEO, Shantanu has transformed the company into an industry innovator by pioneering a cloud-based subscription model for its creative suite, establishing the global standard for digital documents, and creating and leading the explosive digital experience category. He is responsible for driving the company's strategy to unleash creativity for all, accelerate document productivity and power digital business.
Shantanu joined Adobe in 1998 as vice president and general manager of its engineering technology group. He became president and COO in 2005, CEO in 2007, and chairman of the board in 2017. Before joining Adobe, Shantanu held product development roles at Apple and Silicon Graphics before co-founding an early photo-sharing startup, Pictra.
He holds five patents to his credit along with a bachelor's degree in electronics engineering from Osmania University, a master's degree in computer science from Bowling Green State University and a master's degree in business administration from the University of California at Berkeley's Haas School of Business, according to the company website.
A closer look at the revenue generated in Q2 FY20
The revenue of the digital media segment was $2.23 billion, representing 18 percent year-over-year growth. Adobe Creative revenue grew to $1.87 billion and Document Cloud revenue was $360 million. Digital Media Annualized Recurring Revenue ("ARR") grew to $9.17 billion exiting the quarter, a quarter-over-quarter increase of $443 million. Creative ARR grew to $7.93 billion, and Document Cloud ARR grew to $1.24 billion.
Digital experience segment revenue was $826 million, representing 5 percent year-over-year growth. While digital experience subscription revenue was $707 million, representing 8 percent year-over-year growth. Digital experience subscription revenue, excluding advertising cloud revenue, grew 18 percent year-over-year, according to a press statement from the company.
"Adobe's strategy to empower customers to create the world's content, automate critical document processes and enable enterprises to engage with their customers digitally, drove record revenue in Q2," said Shantanu Narayen, president and CEO, Adobe. "The tectonic shift towards 'all things digital' across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis."
Setting targets for Q3 FY20
The macroeconomic environment and this strategic shift impacted Advertising Cloud targeted revenue in Q2 by approximately $50 million. "Adobe delivered another quarter of record revenue and expanding profitability despite the challenging environment, demonstrating the resiliency of our business model," said John Murphy, executive vice president, and CFO, Adobe.
Factoring in on the current macroeconomic conditions, continued impact of the Covid-19 pandemic crisis, typical Q3 summer seasonality and the company's updated strategy for Advertising Cloud, Adobe is setting Q3 targets for FY2020 to reach $3.15-bn, an increase in digital media segment revenue by 16 percent year-over-year, it's Digital Media annualized recurring revenue (ARR) to be approximately $340 million of net new ARR, 14 percent year-over-year growth (excluding advertising cloud) in Digital Experience subscription revenue.
In light of the macroeconomic environment and the strategic shifts for Advertising Cloud, Adobe is withdrawing the annual fiscal 2020 targets set by the company earlier in December 2019.
