Welcome everyone to Adobe's 2017 Financial Analyst Briefing. I'd also like to extend that welcome to those watching on the live webcast. In terms of an agenda today, over the first hour, Sean and Mark are going to give presentations. They're going to cover our vision and our strategy, our business momentum across our key business categories and also talk about our expanding market opportunities. Mark will also talk about some Financial items and review our preliminary financial targets that we provided in the press release about an hour ago.
The press release is available on adobe.com on the Investor Relations page. Also on the web page are slides of today's presentation. I'm sure many of you have already reviewed those. And later on, there'll be an archive of today's meeting, so you can Go back and watch the meeting later on. Before we get started, Can you there we go.
I need to provide our financial disclaimer. Some of the information we discuss today contains forward looking statements that involve risk and uncertainty. Our results could differ materially from those statements. We encourage you to review our SEC filings for a discussion of those risks and uncertainties. With that, we're excited to have you here today.
And let's kick things off with Shantanu.
Thanks, Mike. Good afternoon and thank you for joining us Both those who are here at MAX today as well as those who are on the webcast. For those of you who are here at MAX, I hope saw this was our largest MAX ever. We had over 12,000 people and just the pace of innovation that Adobe is delivering on, it was really impressive to see Everything that the product organization delivered, we had our largest ever showing of new applications and I'll touch on that a little bit later. But what's also humbling as we think about Adobe and the opportunities and the growth ahead of us is that in December, we will actually mark the 35th year Since we were founded as a company.
And we just think that the mission of the company, which is to change the world through digital experiences, Has actually been never as relevant or as powerful as it is today. And we certainly feel like Adobe is executing on the vision as well as the strategic Opportunities that are ahead of us as a company. When we think about our strategy, it's very consistent with what we've been Sharing with you for the last few years, which is it's to empower people to create. We fundamentally believe that everybody has a story to tell whether you're an individual or a business. And the new opportunity that Adobe has also been championing is helping our businesses transform and helping them compete In this new era of digital disruption, what's extremely exciting when we think about Adobe is the breadth of our customers.
The diversified customer base includes people who are individual freelancers, students, education, as well as artists, Anybody who really wants to provide creative expression, but we also have the world's largest brands, largest institutions, publishers That are all looking to Adobe to help them with their digital transformation. What's driving the growth and the strategic Growth of the company continues to be our 3 clouds. We're clearly the leaders in the respective categories, whether it's Creative Cloud, Document Cloud or Marketing Cloud. And as we think about what's happening with hardware advances, that are happening as well as the opportunity for artificial intelligence To change how we deliver the software, we think that the opportunities for Adobe and in fact for our customers has never been more exciting. What I'd like to do is spend a little bit of time first on digital media and talk about our strategy, talk about the momentum that we have, give you An update on the addressable market that we see for ourselves and then I'll do the same thing for digital marketing before wrapping it all up.
On the creative side and on the digital media side, we just continue to believe that everyone has a story to tell. And we are focused increasingly on ensuring that Every communicator has the best tools on the planet, through both Creative Cloud and Adobe Document Cloud in order for them to be able to express themselves. When you saw what we talked about today for the most advanced creative professional, it's very clear that we are providing the most intuitive, the most Powerful and the most comprehensive range of products that's available. But over the last few years, as we've embarked on this Creative Cloud journey, We've dramatically expanded the number of people that we're targeting through our mobile offerings, our services, as well as new applications such as Spark. And we're really committed to this mission to empower everybody to create.
And there are few themes that I think about when we think about what's Going to continue to drive this creative growth in the years to come. The first theme that we talk about is Every Story, Every Surface. We will be at the leading edge of content innovation and creating new tools to support the creation of any type of content that might come. And both digital media creation and digital media consumption has exploded. And as we all know, it's no longer just on a computer or a TV Where we are either creating or consuming all of that content.
When you think about what's happening at the gas pump, where you have what's happening at retail stores, what's happening on your car's dashboard, As well as the airplane seat in front of you and the possibilities that exist with things like augmented reality and virtual reality. The truth is that the creative canvas is everywhere. And when the creative canvas is everywhere and consumers want to Consume it on the canvas that they want to and creators want to create it for the canvas on which consumers are creating it. That just represents a significantly larger Opportunity for Adobe. And while the canvases might change, while the surfaces might change, our commitment as a company as things have moved from print to Web to video to mobile to AR and VR has remained absolutely steadfast, which will we will provide the best, the most comprehensive And the best integrated set of tools that exist so that people can continue to push They're creative.
Every story and every surface continues to be a North Star in our Creative business. The second aspect of What we are really excited about when we think about the Creative business is not just other canvases changing, not just other surfaces changing, But how we unleash the opportunity and ability for them to create content for that service has never been more It used to be when anybody created content on a mouse. When we think about the new modalities that will emerge from a pen or gesture or voice as we showed today, we think that the opportunity to completely Reimagine the creative process, which we did over the last few years with the Creative Cloud continues to exist. We will support people whether they want to work individually. We think Collaboration is going to be a big theme in the next generation of creative cloud applications and you saw some part of that with both XT As well as the other web based applications that we showed, because the intent for us and the idea is that wherever inspiration strikes, We want to be there with them.
You saw mobile applications where you can actually draw something on a piece of paper and then within a few seconds, it's a brush in your favorite creative application. So, our goal and what we call as a core tenant for us to reinvent the creative process is putting assets at your fingertips Irrespective of where you are in the creation process, making these mobile apps work unbelievably seamlessly with the existing desktop franchise that we have, Developing flexible and new types of user interfaces and experiences for people to engage with these applications. And the whole idea is how do we unleash the creativity so creative folks can focus on what they want to communicate rather than how they accomplish that. And so That is the second part of the Creative business that represents a North Star for us in terms of how our product people think about the opportunity that exists. And last but not least, everybody is talking about artificial intelligence.
Everybody talks about machine learning. Our belief is that we can harness the power of the community and the collective intelligence that exists in terms of how people create content In a way that is incredibly unique and available to us. We start with the fundamental premise that no creator wants to do in 3 hours or 3 minutes, what we should enable them to do in 3 seconds. And we have to be able to automate the mundane tasks that people don't want to do. As we have these 100 of millions of assets that people are creating, as we have millions of creatives working in our applications every day, The more we learn about what they are doing, what those objects represent, that is the biggest technology moat that Adobe can build With respect to anybody else who's coming into the creative process.
And that is what Adobe Sensei fundamentally does. It's learning from the 100 of millions of content assets that are being created and it's bringing that intelligence back to Every single user of our creative products so that it can be a creative assistance. You saw us show prototypes of applications where people can now talk To Photoshop and find the right asset and ensure that the creative graph of everything that was done is seamless and intuitive for the user. And so It's our fundamental belief that Adobe Sensei will free up people from the mundane tasks. And again, it'll help them focus on the creative process And telling their story.
So these three things represent for us 3 core tenets of how we will continue to innovate in the creative realm. When we think about the digital media offering that we have, there is no other company that has the kind of comprehensive offering that Adobe has, Whether that be on the creative side or whether that be on the document side. And we continue to feel like we are the one stop shop for creativity all the way from inspiration Out to monetization, whether it's the rich platform of desktop or mobile or services that exist, whether it's new media types like Augmented reality or virtual reality, whether it's new customer adoption that we're getting, where we are doubling and increasing the number of people who are using our tools, That really represents a big opportunity on the creative side. And on the document side, it's clear that we continue to build and leverage On the incredible PDF franchise and Acrobat franchise that we have as we help people move from inefficient paper based processes To automated electronic processes. Our mobile products on the Adobe Document Cloud side is dramatically improving the number of users that we have.
Adobe Scan is an incredible product that again leverages Adobe Sensei. So you can effectively and quickly turn Any paper based document into PDF, so it's PDF creation for the mobile era. But when we look at the opportunity that exists in both of these, We think we've just begun in terms of how we can continue to help people with their creative aspirations. Let's talk a little bit about the momentum. When we started this journey towards the Creative Cloud a few years ago, one of the fundamental tenets that we had Was that we wanted to remove the barriers of the traditional 12 18 month product cycles because we felt like our product organizations Could innovate much faster.
We are literally delivering hundreds of updates, when we think about what each of our flagship Applications have been able to do in terms of new products, new functionalities and improving the performance. When you think about video and what we did at the NAB conference, it's clear that video continues to be an explosive area of growth for us. Adobe Stock, we have product innovation that's happening there Not just in search, so people can find the right asset, but in terms of integrating the products into the desktop applications that they love. And every quarter we've been on this relentless march to drive more product innovation. The same thing is true on the document side.
We had a memorable release of Acrobat This year that continues to drive unit adoption that I'll talk about a little bit later. Adobe Scan, as I said, mobile PDF creation for this era. Adobe Sign, which continues to grow and it's a new capability, we've signed some interesting partnerships that enable us to expand our ecosystem. So We have tremendous momentum in this space and we continue to see some large opportunities. A little bit on Macs for those of you who may not have attended the session today.
It was the most comprehensive set of new applications That Adobe has delivered in the history of the company. Adobe XD, I'm really excited about Adobe XD because it represents a significant market expansion. We believe that anybody who's designing a product right now for any screen, XD is a great application for them to use. It's cloud native, collaboration is built in Seamlessly and it enables people to work across mobile, the desktop as well as the web. Adobe Dimension, it's a little bit more of a specialized product, but enabling people to do 3 d to 2 d and 3 d compositing, which previously was done Through very expensive photo shoots, Adobe Spark, something that we've talked to you about, which is our product that enables anybody To communicate with professional looking graphics or web pages or video stories in a matter of just a few minutes, we had introduced this last At stage, we talked about the 7,000,000 people who are using it.
We've introduced new premium features that enable people to incorporate their own branding in this particular Application, character animator, which is one of these incredibly innovative applications, which bring 2 d puppets to life, Enabling people like Stephen Colbert or the Fox Simpson show to be able to do real time character animation, which was never possible before. And Lightroom. Lightroom and photography has always been a key area of opportunity for us. Lightroom CC represents a fundamental new service Where we've reimagined the entire digital photography as a system from the ground up so people can have access to their images as well as best of breed Photo imaging capability irrespective of where they are and we are also providing storage right now. So as we continue to get these assets, It represents a virtuous loop for us to be able to, through Adobe Sensei, learn more about what our customers are doing.
So just an incredible Max, that I wanted to spend A few minutes on. As I think about the Creative Cloud business momentum for the year, here are some statistics that we've shared with you in the past that we wanted to give you an update On, we continue to attract new customers to the Creative Cloud franchise. What's really exciting is as enterprises are Leveraging and using the Creative Cloud, 66% of the Creative Cloud enterprise seats are now licensed with services, Which represents a far stickier opportunity for them to do it. So it's clear that we are broadening the customer base and community that we have. We now have over 10,000,000 Behance customers, the second thing that we're trying to do is really deepen the product engagement.
We've had over a 1000000 downloads of Adobe XD even before it Was a ONEO product, that was released today and clear that services that we have been talking to you about is also continuing to drive new growth and Our opportunities for us such as Adobe Stock where the ARR doubled year over year. So continue to see good momentum in the Creative Cloud business. On the Document Cloud side, as we think about the business momentum, we're building on an incredibly strong franchise. We know that we have about 200,000,000,000 PDFs that are Every year in Acrobat and Reader, we're certainly attracting new user growth when you think about the 19% year over year Acrobat unit growth that's happening. And clearly, as you look at our financial results, you all have to remember that a significant amount of the Acrobat growth also shows up As part of the Creative growth because it's available as a single app purchase in the Creative Cloud funnel as well.
We have 33% new subscribers who are also new to the Acrobat So clear that we continue to attract new customers and mobile represents and services represent a large opportunity. So whether it's Signature that continues to make traction or the 500,000,000 mobile apps that we have downloaded, that represents the next generation of customers that we are cultivating. So great momentum across both of these businesses. And as we think about what's going to continue to drive this Digital Media growth over Many years to come. We've already seen significant growth since we started this journey and moved to the cloud over 6 years ago.
But In terms of the core opportunity, we still have millions of people that we can migrate from both Creative Suite as well as Acrobat to the subscription model. Category growth as we have touched on, which is new categories like AR and VR and 2 d and 3 d as a result of the content explosion that represents Core growth because we make all of our applications available both as single apps as well as in the entire Creative Cloud all apps. You heard today that we continue to evaluate and optimize pricing as well as packaging so that we can Expand our offering to a broader set of customers. So the core continues to represent a large opportunity for us. In market expansion, what we are doing with mobile only services, What we are doing with new apps, such as Spark as well as what we are doing with this photography plan to continue to expand new offerings, That represents a large opportunity for us.
And on the value expansion side, what we are doing through both stock and sign as well as continuing to target both The individual and enterprise with new ARR opportunities. So very confident that digital media continues to be a large Growth opportunity for us. And the way that gets reflected in the total addressable market in 2019, We had talked about a year ago what the TAM was in 2019, which was $19,000,000,000 plus. We now think that that Opportunity has expanded to $24,000,000,000 plus And to give you where that growth is coming from, there are many things that are driving that growth in the addressable market. There's certainly new opportunities in education as we target higher education as well as the broader K-twelve.
The broader photography market Is represented in this new TAM with the new Cloud Photo Service, the business communicator market that we are now targeting with offerings like Spark, New services offerings that we will continue to deliver, areas such as collaboration and stock content and pricing optimization. So We think that we continue to execute incredibly well against the opportunity that existed. But even more important, I think from a Financial perspective, we're significantly expanding the available market available for us and we think that will continue to drive the growth and trajectory for many years to come. Similarly, we're confident in the growth opportunity for the Document Cloud. And again, as I said, Significant portion of people who buy Acrobat are also buying it for creative workflows.
But when we think about the growth from $4,500,000,000 to $5,300,000,000 It continues to be as a result of electronic signatures, what we are seeing with mobile services and what we are seeing with the Continued adoption of Acrobat subscriptions as people migrate from the perpetual versions of Acrobat to the subscription versions of Acrobat. So in summary, when we think about the digital media opportunity, I think it's fairly clear that we have undisputed market leadership. We're certainly not resting on our laurels. The amount of innovation that we are delivering against this category continues to be inspiring And we have multiple drivers of ARR growth. So great opportunity in Digital Media.
Similarly, what I'd like to do now is spend a few minutes On digital marketing, how we see the opportunity, the 3 core tenets, a little bit about the momentum and why we're excited about growth moving forward. What's exciting about the digital marketing and the Experience Cloud opportunity for us is We are the ultimate clients of having experienced the benefits of what this technology does for us as we have transitioned From a primarily desktop 2 tier channel into this online business that we talked about. And it's not just us, but I think every business leader Is keenly aware today that the basis of competition in their industry is changing because every business today has to compete With the hearts and minds of consumers through every click and through every digital interaction that's happening. And we're helping all of these businesses Transform themselves to where they have a digital first experience. What's interesting for us as we think about this business is this started less than 10 years ago As an analytics business and we were targeting the Chief Marketing Officer, it has grown to be a $2,000,000,000 business And there isn't an analyst who today talks about the key enterprise leaders of the future as SaaS based enterprise companies and doesn't put Adobe At that in that list.
And now what we are really doing is focused on a much larger opportunity that Brad talked about at last Summit, which is the experience Business opportunity that I'll touch on. And again, we think that there are 3 core tenets that are driving this strategy and the opportunity. The first is and I think all of you as consumers are experiencing this, people are buying experiences not products. When you think about even getting coffee, coffee is now a lifestyle experience. It's well beyond the quality of your latte.
It's about what you're doing with music, the ambiance. Is it available online when you go ahead and even order this through your mobile device, so it's ready when you arrive? You think about what's happening in banking, where banking is now about full service convenience anywhere, anytime, apps that allow you to open and access accounts, buy Different financial services, pay your bills, online banking courses to help you learn the basics of whether it's budgeting or finance or investing. And cars have also certainly become the ultimate digital experience well beyond the virtual showroom to where Every journey of yours has to be this highly personalized journey. And so we're seeing this trend across industries whether it's retail, whether it's Travel and automotive, whether it's financial services and even government is are realizing that people are now buying experiences Or have to have an experience rather than just the product.
What we think is absolutely critical in all of this Is that every business is now realizing that growth is the new retention is the new growth because every customer can choose to renew Or cancel with every click and every interaction, something that we learned as we went through our own Creative Cloud journey. And so We believe that every business has to be an always on, knowing the past and anticipating the future business across every digital channel. And that's what we call the Experience Business. We think our unique perspective on this business and our unique And our differentiation over time is that in order to create that experience business, you absolutely need to put art and science to work. Great content, we believe will always be fundamental to breaking through the noise that exists because content needs to be eye catching, it needs to be clear, It needs to speak in a single voice to a customer across every channel.
And it's incredibly hard to produce all of the amount of content that needs to be created. But it's not just art. We need data that requires the context to be understood in order to be able to respond in that last millisecond that we've talked about With the personalized content. And so the data and content when you put that together to deliver the personalized experience, That's what businesses need to do in order to be able to deliver this consistent and exceptional experience every time and everywhere. And much like in the creative side, we think our AI and our predictive technology will continue to be a moat Because we think that every enterprise today will require a new enterprise architecture that's actually built for action.
When we think about the velocity, the variety and the volume of what happens with consumer experiences, That amount of data is outstripping any individual's capabilities or the legacy ERP and CRM systems To be able to drive actionable and meaningful insight. We think our data platform and Adobe Sensei Are being trained and designed for this purpose. The fact that we process over 150,000,000,000,000 transactions a year, it empowers our data platform to process this data, to distribute the insights, to do the right inference and to fill in any of the missing information that's required faster and effectively Than more any other system. And when you combine all of this data expertise with what we have done on the content platform, We think that makes the Adobe Experience Cloud the platform for the experience business. At Summit in March, again, we talked about how we were rebranding and reoffering our Marketing Cloud Solutions into the Adobe Experience Cloud.
We continue to believe that they represent the most complete and comprehensive offerings In digital marketing as well as in customer experience, the Adobe Marketing Cloud is an integrated set of marketing solutions. It enables the world's leading brands to differentiate their stories to connect with their customers on a personal level. The analytics cloud, we think is going to be fundamental to the Enterprise, it's the intelligence engine for the enterprise with respect to the consumer. It combines both digital and offline data right now To help brands to move again from insight to action, Audience Manager as one solution in that particular Offering has become one of our fastest growing solutions because every company is thinking about their audiences and the data management platform that is required To deliver this online experience and Adobe Advertising Cloud continues to be the 1st end to end platform that exists That helps marketers manage their ad and spend across all digital formats, whether that's linear TV, display, search and video. And we continue to see significant growth in the advertising cloud both in 2017 and beyond.
When I think about the business momentum in this particular industry, mobile continues to be a large opportunity for us. 57% of the analytics Transactions that we are seeing are happening. Industry analyst recognition, just last week Gartner again named Adobe, A leader in digital marketing analytics and across the relevant industry categories that we track, we remain by far the leader in Providing innovation for our customers, we're engaging deeper and higher as we become more mission critical in each of the companies that we engage with, Whether it's the 4,900,000 average ARR that we are now seeing in the top 100 customers or the fact that 70% Of the top 500 customers now have 3 plus solutions and there's growth in scale as we think about what's happening on mobile with our transactions, what's happening with the Trillions of transactions that we're measuring and the scale and power that's available to us through Sensei. So as we think about architecting for the Experience business, we think that the entire Experience business will challenge the status quo Of how enterprises think about architecture. We think that a new architecture will be required.
We think it has to center on the real time unified Profile of the customer and it has to have that common language for customer experience to bring all of the current disparate systems that exist in an enterprise So that you can orchestrate the customer journey across all touch points, you can create and manage engaging content at scale, As well as you can monetize and optimize the business decisions that need to be made using artificial intelligence. So this is our strategy. This is the architecture that we're delivering. This is the innovation that we're investing very deeply in and we have our lead on and we're well on our way to delivering this for our customers. As we think about moving forward and what the growth is, we think there are 3 pillars for what continues to drive growth in the Experience Cloud.
The first continues to be Customer engagement, we're seeing growth in demand of each of the solutions. We're penetrating the accounts with more solutions as I touched on, As well as we continue to think that geographic and vertical expansion continues to be a large opportunity for us. The partner leverage, there isn't a partner right now in Ecosystem that doesn't have an Adobe practice, we've been able to create that at scale and whether it's systems integrators like Deloitte Digital or Accenture Or digital agencies like Publicis. Sapient and WPP, they all have thriving digital practices for us that It enables us to not focus on our own services and to optimize our services right now towards launch and architecture services and enable them to run and build that. And we also have some interesting software partnerships with companies like Microsoft that enable us to together deliver a more comprehensive and unified solution for our customers.
And we continue to think that our product differentiation is in building this long range Architecture for what the customer business requires by putting all of our solutions together in a data and content platform at scale. As we think about the addressable market for us, we think that the addressable market, Given all of the new solutions that exist has gone from $40,000,000,000 that we outlined to over $53,000,000,000 Part of this is driven by enterprise IT spending. The enterprise IT spend on customer engagement has certainly increased, whether it's governments Who are delivering citizen facing services, whether it's media and entertainment that's increasingly seeing their business move online. And the growth specifically has been driven by the Marketing Cloud where the new categories like content Management, content marketing, campaign management that represent larger opportunities in enterprise as I talked about audience manager In the analytics cloud with data management services being more fundamental to an enterprise and with the acquisition of TubeMogul, Certainly, the Ad Cloud represents a much larger opportunity for us as we have a more complete portfolio to target the large $8,000,000,000 plus advertising opportunity. We certainly feel that while this is a large TAM, there will be many players, but we continue to think that we will be differentiated and we will get a disproportionate Share of this opportunity by virtue of the fact that we are a leader in both content as well as data.
So as we think about the summary for this particular business, When I think about what we did a few years ago as we talked about our capabilities in marketing, we created that Entire category from scratch when we started it. We think the Experience Cloud actually represents a much larger opportunity. It's an opportunity where more C level executives are interested in investing in, in order to enable their businesses to transition. But we continue to be the market leader. We have unparalleled scale of content and we will continue to invest deeply in innovation, in go to market, As well as in partners to continue to fuel this for long term growth.
So in summary, as we stand here a year later And we look at the momentum that we've had in the business. We just continue to think that we're in a rarefied atmosphere with respect to a company That has a mission that continues to be more relevant and more important than ever before. We have market leading solutions In broad customer categories from the Creative business to the Document business to the Enterprise business, we think it's over $80,000,000,000 TAM And we will continue to broaden and diversify our customer base and focus on executing to deliver innovation for our customers. And now what I'd like to do is have Mark really talk about the numbers, show the momentum and talk about our plans for 2018.
It's not. There you go. Okay. All right. Thank you, Shantanu.
So as Shantanu said, I'm going to give you some perspective on our momentum. And I'll give you some more transparency. You've seen this in the materials already, but I'm going to give you some more transparency and a better understanding of how we grow these businesses, particularly In digital media as it relates to ARR and revenue and in Experience Cloud as it relates to both bookings and revenue. And then as I go through this in context, I'll talk about our 2018 guidance and then we'll take some questions. So before I do that, a little bit of housekeeping.
It's sad, but my first slide is on revenue recognition. I want to do an update on the expected impact 606. So we've done a lot of work on this now and we feel much better about where we are. Again, It's effective for Adobe the beginning of our fiscal 2019, which would be December of 2018. And Having gone through this for a while now, we expect very negligible impact for a great majority of our products, Those products that are fully hosted or those products that are sold with services, things like Creative Cloud and Document Cloud, of course, and a lot of digital marketing.
There will be some impact, but only term based transactions where customers choose not to buy services. You could think of accounts like government and maybe some financial services implementations, but those will be more on the rare side. Those will result in some revenue that's currently recognized ratably coming back to upfront revenue recognition. And we expect a one time reduction as does everybody for deferred revenue and unbilled backlog. However, given all of that, We don't expect annual revenue to be changed materially moving forward.
Certain costs like commissions Related to contract acquisition will be capitalized as well. So those are really the impacts of 606. We feel good about where we are, Not a lot of material change from our perspective. From a capital structure perspective, you all know this, we're very well capitalized. We have significant debt Capacity still available.
Very strong liquidity position with $5,400,000,000 in cash, a $1,000,000,000 credit line that's unused right now Available till 2020. We've had a conservative approach to debt. We have $1,900,000,000 in debt And our debt to adjusted EBITDA leverage ratio is less than 0.7. We were just recently upgraded by both Moody's and S and P. And as you know, excess domestic cash after M and A has returned to shareholders in the form of share repurchases.
We're on track to do more than $1,100,000,000 of stock repurchases this year, and we'll have $1,900,000,000 left on our $2,500,000,000 authorizations. That continues to be a tremendous program for us. So before I get going into the businesses in 2018, I do want to reaffirm our P and L targets for Q4. We're midway through the quarter. We expect to hit our revenue of $1,950,000,000 and our EPS targets of $0.86 on a GAAP basis and $1.15 on a non GAAP basis that we're halfway through the quarter and we can this is a testament To the predictable subscription and recurring revenue model that we have now.
Mid quarter, we don't update ARR in bookings. With that though, I do want to talk about where we've performed relative to the 3 year CAGRs that we put out in 2015. So as you know, we've done these back to back 3 year models. This is the 2nd 3 year model. And we are on track To meet or achieve the majority of these key measures.
So revenue, we'll beat that 20%. Digital Media segment revenue, we will beat that 20%. In Digital Media ARR, we will beat that 20%. On the Experience Cloud, We will be right around that 20% that we laid out in 2015. And then clearly from an earnings perspective In a cash flow perspective, we'll performance there.
When we did set this out, the Experience Cloud bookings target Did not have a significant usage based model at that time. So with the acquisition of TubeMogul and our setting up This advertising cloud which is a usage based model. Our methodology on how we think about bookings changed. And as I get into this call, first, I want to walk through total company revenue margin. I'm going to show you GAAP and non GAAP operating margin, and I'm going to factor in 2018 guidance as I go along here.
So first a view of revenue and GAAP operating margin. So the bars on these two slides show 2014 Through 2016 actual revenue, 2017 based on today's reiterated guidance And 2018 based on today's guidance. 2014, by the way, the reason I chose 2018 after the transition, so this is you came back to historic levels, They're fair comparisons, that's a set of performances on top line revenue number. We will have doubled revenue in 2014 2018. And we've done it while dramatically improving margin.
And you can see the non GAAP sorry, the GAAP operating margin there. Phenomenal growth in revenue and non GAAP operating margin as well since 2014. So incorporating our targets for 2018 on here, We continue to grow the top line of the company 20%, which is pretty impressive for a company at our scale and earnings by 30%, which is even more impressive. Our margins reached historic highs back in 2,008 at 40%. So I've talked to a lot of you about this In the past about how we think about margin.
And in 2,008, before we had any digital marketing business whatsoever, it was basically just digital media, We approached historic highs at 40%. And a lot of you have been asking for a while, when do you get back to those historic highs? Well, there it is. So in 2018, we will have more than doubled our business and we expect to have the margins back near these historic highs in 2018. So now I want to walk you through a bit more transparent Currency, We wanted to give you more transparency into each of the revenue types, service and support, subscription and perpetual.
It Shows on the Creative Cloud, how in business transition has been. This is one of my favorite slides. We've doubled the size of the Creative business, dollars 1,800,000,000 Over $4,000,000,000 and it's now 95% recurring revenue. That small sliver that you see on the right of perpetual It's comprised of revenue from stock on demand, Adobe Stock on demand as well as perpetual associated with elements in our hobbyist products. So that's Pretty small now and continues to reduce in size as people, even in the hobbyist side, move more and more over to subscription.
But this is a pretty impressive transition. And staying with Creative Cloud, this is a good representation of what we've been showing you since 2011, The transition to the subscription model and the power of the stacking effect of subscribers. So you see ARR, which As I've said for a long time now, remains the best measure of overall health of this business, and it's a leading indicator to revenue. It continues to track together with revenue, which is what we said back in 2011 eventually would happen. So you're seeing that play out where revenue and ARR start to grow Together now.
Shifting over to Document Cloud, a little bit of a different story here. We took a different approach to Document Cloud with the move to subscription. The way I describe it is we've feathered subscriptions in over time. And while doing so, we've driven strong new user growth, while keeping revenue relatively stable. So we've held revenue stable over the past 4 years at about $800,000,000 and the business itself is far healthier with the move to a subscription model.
So you'll see here that subscription revenue is now over 60% of revenue in Doc Cloud versus 20% back in 2014. We still have a fair amount of perpetual revenue, about $300,000,000 but that is going to continue to slowly migrate from perpetual over to subscription. When you look at the same graph that I showed from Creative, revenue, like I said, has remained relatively Stable at $800,000,000 but you can see the build up, the nice build up of ARR. And as Shantanu said, a lot of Acrobat is licensed through Creative Cloud. So the Document Cloud revenue here does not capture all of the Acrobat that's showing up under Creative Cloud.
And just like Creative Cloud, over time, That ARR line is going to pass revenue and they'll start to track together. It's just taking intentionally a slower approach on this business. When you look at the same slide for Experience Cloud, revenue for this business has grown from 1,200,000,000 As Shantanu said, dollars 2,000,000,000 in 2017 is what we estimate. And like Creative Cloud, just like Creative Cloud, we are very, very focused On driving subscription revenue, pure subscription revenue, the best measure of the health of this business, just like on the Creative business. It's recurring and it's sticky.
We've more than doubled subscription revenue in this business from $700,000,000 to $1,500,000,000 So we haven't disclosed this level of detail to you before, but we thought it was important for you to understand a little bit more of what's going on under the covers in this business. And our definition of subscription in this business is SaaS, managed services and term offerings For Analytics and Marketing Cloud plus revenue for AdCloud since AdCloud is a usage based model. Perpetual, you see, continues to transition to subscription, and it's now, as we've said, pretty de minimis. I mean, it shows as $100,000,000 but it's clearly much less than that, Couldn't round that small. Services and support, and I think this is important.
I talked about this at Analyst Day last year, but services and support It's growing at a slower rate than subscription revenue. We utilize our own delivery capabilities, but we also use partners to ensure So service and support, you can see, is growing much slower. Subscription revenue is growing 20%. So as I mentioned, we're laser focused on growing the subscription portion of Experience Cloud. From 2014 to 2018, Subscription revenue will grow from approximately 62% of total revenue to 79% of total revenue.
So this is exactly what we want to happen. We are going to begin to report to you each quarter, Experience Cloud subscription revenue and we'll guide to it each year like we're going to do today. We expect our Experience Cloud subscription revenue to grow approximately 20% next year, with services revenue growing much slower, And that's why Experience Cloud total revenue grows 15%. So again, subscription revenue grows 20%, services grow slower, Total Experience Cloud Revenue grows 15%. Shifting over to the balance sheet.
This is just another indicator of the strength of the business. We continue to have strong growth in deferred revenue and unbilled backlog and that's reflected here and we Fully expect that to continue to grow through 2017. And obviously, tremendous cash flow. Our performance continues to drive tremendous operating cash flow. We anticipate having a very strong Q4 from a cash flow perspective.
And we're on track, as I mentioned, to exceed the 3 year CAGR that we laid out for 2015 through 2018 of greater than 25% operating cash flow growth. This strong operating cash flow growth allows us, of course, a lot of flexibility as it relates to M and A and also as it relates to Shareholder repurchase buyback programs. So let me wrap up each business before I get into guidance for 2018. First, Digital Media. As Shantanu said, it's a 2020 TAM of $30,000,000,000 The expanding TAM is driven by market trends and our investments in this cloud strategy.
Mike and I often get asked how we keep the growth of this Digital Media business going. A lot of you have been concerned how does this thing keep going Year after year. But we've invested, you saw a lot of this this morning, we've invested the past several years to create new drivers For digital media growth beyond just the migration of the CS base. That's not the story anymore. The story is not the migration of the CS base anymore.
So just to rattle off several of the areas that we see as opportunities for growth in this business. We continue to acquire new customers. Shantanu showed you that That of over 40%. We're expanding into new markets and categories. We're expanding internationally.
We've talked a lot on the earnings calls about the opportunity internationally for this business. We continue to see the benefits of fighting We continue to see the benefits of fighting piracy. It's very hard to find pirated Adobe software in this space anymore. We continue to leverage mobile apps as an on ramp for new users. We're targeting larger markets with web services and more consumer oriented offerings.
We have value expansion services such as Adobe Stock and Adobe Sign that are really driving services in this business. And you saw this morning pricing optimization. So we took the first step towards pricing optimization in this business. And I think there's more opportunity there down the road. And last but not least, we have a relentless focus on retention and upsell.
So once people are in the franchise, the ability to upsell them. All of that gives us confidence that we can continue the trajectory of Business from an ARR perspective to continue to drive revenue growth in this business. Experience Cloud has a 2020 TAM of $53,000,000,000 and we're really executing well against this large opportunity. It's a huge category. And as Shantanu said, we originally created this category as digital marketing and we've now expanded the category to Experience Cloud.
In doing so, we more and more are becoming mission critical to our customers. Our engagements are larger And we're working to increase the velocity of the business from leads to pipeline to contract And ultimately to customer implementation. And we're also building out an ecosystem of partners that see Adobe as a key player in this space. We're working with Microsoft, one of our key partners to help each other grow in the enterprise. Nobody can tell the story like Adobe can of Content plus data and how important that is to marketing and online user engagement.
We continue to invest in this business for future growth, And we've aligned the business model to focus on the most important part from a financial perspective, subscription revenue growth. And we're confident this business is going to continue to grow in the long term at a pace consistent with the size of the opportunity. So preliminary targets for 2018. These are the summarized targets for 2018. We are Extremely excited about the opportunity to continue to grow this company at scale 20% On the top line, so 2018 revenue guidance of approximately 20%, which would put us around $8,700,000,000 next year.
Digital Media continues terrific growth and we expect that to grow approximately 23% next year. This does assume an upward revaluation of ARR at the end of the year because of FX, and I'll come back to that in a second when I talk about ARR. In Experience Cloud, subscription revenue, as I said, is going to grow 20%. So very healthy 20% growth in that from a subscription revenue perspective. Again, with services growing slower than 20% and total Experience Cloud revenue, therefore, growing 15%, Again, subscription revenue is revenue from SaaS, Managed Service and Term Offerings for Analytics Cloud and Marketing Cloud plus Revenue for the Advertising Cloud.
And then last but certainly not least, earnings. We've consistently, I think, shown that we can drive margin when we want to drive margin. And we have A very good cost centered kind of culture around the company. We continue to reinvest and reallocate resources within the company. And by doing both of those things and having top line revenue growth of 20%, we're very excited to be able to drive 30% Year over year growth in earnings yet again, which would put our earnings on a GAAP basis at $4.40 and then a non GAAP basis at $5.50 So as you know, but just to remind you, we keep ARR in constant currency throughout the year.
And every year end in December, we revalue ARR based on the then current FX rates. I fully expect at the end of this year, ARR will be restated significantly up based on the change in FX over the course of the year. On top of that, so on top of that revaluation of ARR for FX, we expect to add Another $1,000,000,000 of net new ARR. Experience Cloud bookings are expected to grow 20 Let me take a minute to explain what we mean by bookings now. So bookings reflect the annualized subscription value or ASV For SaaS, Managed Service and Term Offerings Under Contract for Analytics and Marketing Clouds.
Again, it's SaaS, managed service and term based offerings under contract for the analytics and the marketing clouds. 20% It's off of the base of ASV under contract at the beginning of the year. So it's off of the base of business that we have at the start of the year. Advertising Cloud is not included in this calculation because it's a usage based model. It's in the revenue that I talked about, but it's not in this bookings target because it's a usage So to wrap it up and then we'll take questions.
We just feel great about the opportunity that we have in front of us still. We're the market leader. It's a huge market opportunity. It's a large and expanding TAM as you saw from both Shantanu and I. Our business momentum continues to be strong.
We continue to invest a lot in the business in R and D, in AI and machine learning to drive future growth. We've got a great broad expanding partner ecosystem. And from my perspective, the leverage in the model It's just compelling. I mean, we continue to drive record margins, record profits, record cash flow. It's rare that you see an $8,000,000,000 company delivering Top line growth of 20% 30% bottom line growth with margins already where they are.
We're delivering growth and margin at large scale. Our P and L is predictable, and we've had a very strong focus on execution for many, many years now. So with that, I think we're going to bring up a few people on stage and take your questions. So give us a sec to set up.
So
bring up chairs, so we'll just take a few minutes to get set up. So in addition, we had Mark and Chantanu present. I mentioned it'd be about an hour, and we're going to add some of our business unit leaders, Brad and Brian as well as Abe for the and A session. As always, we want to have a conversation. We want to answer your questions.
But one question at a time, It's a lot easier to respond to one question as opposed to 5 or 6 part questions. While they're setting up, maybe a couple other things. The slides online actually have a little bit more information, A lot of footnotes hopefully to provide clarity around some of the things that Mark just walked you through, especially around the TAM information as well. There's more information there. So we don't want to clutter all the slides with all that detail.
So online, there is additional information available to you. And of course, we're happy to go over a lot of that information after this week. So with that, there are 2 people running around with mics. We ask that you raise your hand if somebody will find you. Maybe just there.
Thank you.
Ross MacMillan from RBC. So maybe the first question is just on the price changes on digital media. It seems like, First of all, it's going to have a partial year impact this year because it doesn't start until March. And then I guess I'm curious, It's only U. S.
As well. So maybe the question is, how did you come up with the actual price increase? Like what was the thought process around those actual numbers? And then second, should we be thinking about this having a tail effect into the following year? And then What's the optionality to do more either international or other things over time?
Thanks.
That was one question, Ross. I I think it was the general theme on pricing and maybe I'll start. And first, as you know, in many years, our strategy continues to be How do we get people to the platform 1st and foremost? And once we get people to the platform, we've always maintained that there is Pricing optimization that we will continue to look at. So I just wanted to clarify that strategically first in terms of getting people to the platform, We still think that's a big and large opportunity for us and that's what the focus is on.
The second thing I wanted to clarify as it relates to our targets Is that as we think about the $1,000,000,000 additional in ARR that we told after the what we believe will be an upwardly revised as a result of foreign exchange In ARR, that's really not been factored into the targets at this point because as you correctly pointed out, it gets rolled out later this year. It's not in International Markets, it's not also in Education and a couple of the other areas. So I just wanted to clarify that as the second point. The third thing, I think as you look at what we are focused on, there is so much innovation that's come out today. And since we hadn't done price increases, we have done some by the way that you're probably familiar with in foreign markets As we have looked at when currency fluctuates, we continue to do it.
But this is where I'll hand it over to Brian. Brian and his organization, They do an incredibly extensive focus in terms of what pricing potential is. Since the focus is still very much one of adoption of new customers and focus on that, we certainly believe there's more tuning and optimization available. But it felt like with the 5 new products, it was time to start to look at the core creative all apps for commercial As well as the team and start to do some price adjustments. Yes.
And in general, we're engaged in can you guys hear me okay with the mic? Okay. We're engaged in ongoing tuning that you've seen play out in the international markets, which are focused on some of the FX adjustments that we've made over time. As Shantanu said, and particularly given the That we're driving more than 40% of our growth from the users. We're very sensitive to make sure that we're pricing for to continue the momentum of that growth.
And so we're judicious about studying the market And the elasticity in the markets to support that. But I think the core thing is we're starting to anchor the conversation initially. We haven't made adjustments in the core U. S. Market in 5 years.
We're delivering An incredible amount of value. We're not just changing prices
for some of
the core offerings, but we're also stacking the offering appropriately for certain segments like Photography where we have multiple price points that are really addressing multiple needs. And we think that our knowledge of the market, our knowledge of the usage And our knowledge of the our understanding of where the value is really being realized by customers has given us the insight to drive these changes. Next question.
Kirk Materne with Evercore ISI. Maybe one for Brad. Brad, Coming away from the last quarter, there was some discussion about push outs in some of the Experience Cloud deals. While we have you, I was wondering Just maybe give us an update on where you see the business right now. Obviously, the guidance implies another really good year in Experience Cloud.
But could you just talk to us a little bit about what's Maybe going on in terms of bigger, more complicated deals and how that's factoring in, so your thoughts on the business over the next 12 months or so.
So one thing I might suggest, Brad, is again taking a step back and sort of talking about the large opportunity that you see while you address that.
All
right. Everyone hear me okay? Great. So, yes, I think at the macro level, for those and many You were at Summit a few months ago. And so I bumped in a few of the hallway and you asked me about how is the positioning of experienced business And really chasing that opportunity.
How's that going? And I would say that over the 6 months since we rolled that out, it's just resonated really well in the market It's tapping into something that we saw over the last 10 years as we created and established a new category of the Marketing Cloud. We're essentially doing the same thing now, but doing it much more broadly across the enterprise. Because as Shantanu laid out earlier in his presentation, This is something that every organization, whether you're small, medium, big, you're a government institution, you're an educational institution, you have to think about what is the experience that I'm providing to customers. And what we found from a customer engagement standpoint is what started as a CMO decision, this digital conversation, Has now bridged to the CIO, has now bridged to the head of revenue, to the CEO, and has really become almost a Board level conversation.
And as a result, the deals have gotten much bigger. The number of people involved in those deals has increased. And as you saw from the metrics, the amount of ARR and, the penetration that we've been able to get within that installed base has been fantastic. But it has, increased sales cycles in some of our segments. And so we're really focused, I would say, at scaling our efforts.
We've been wildly successful, you know, in SaaS software to get to $2,000,000,000 We're really focused in this broader opportunity of what do we need to put in place to go from $2,000,000,000 to $5,000,000,000 to $10,000,000 So Mark talked about some of the processes and systems that we're putting into place to increase that deal velocity. I'd say that after Q3, Kirk, that's really where we've been focused to make sure we're driving that execution deep in industry verticals, deep in the markets that we care about. But the conversations have never been better in and around the opportunity.
Next question.
I get the mic. Hi, happy to you, Ali guys, Shantanu and Abhay, clearly and you guys as well. Kashrangan from VAML. Shantanu, you talked about the TAM in digital media at $30,000,000,000 So if you look at people's projections going up to 2020, the revenue in your digital media segment will still be very much smaller So I'm wondering what the gap in the TAM is and should we expect to see Adobe evolve into a Office 365 type of a business where every professional user uses Office 365. Therefore, we can all think of how that business for Microsoft is going to be $25,000,000,000 $30,000,000,000 So I'm curious, how do you see that kind of a product horizontally being adopted throughout the entire Not just the high end creative guys, because that's the only way that I can see how you can achieve your TAM and not be a small portion of the TAM.
While you Still the market, you are the market, you're the dominant player, but I just see the gap as being pretty wide. Help me understand what the thought process is. Thank you.
Sure, Kash. And I'll start and then Brian certainly feel free to add. I mean, remember, when you think about the Digital Media TAM, there are multiple components to it. I'll start off with maybe some that are not as large right now that represent large growth opportunities. So when we think of stock, We've said in the past that's a multi $1,000,000,000 opportunity that certainly put us part of that TAM as well as a sign.
So There are fair number of services that are in that. Mobile, as we continue to do mobile and PDF, I mean, we've said in the past, we have tens of millions of people used Acrobat in the past. They're not on our subscription, so that continues to represent it. The basis and the core of your question though was How much more mainstream is our are our applications going to be? And what vision does Adobe have To ensure that our applications are mainstream for anybody who's trying to create content.
And I think if you looked at what we were doing with mobile, what we did Spark and certainly what exists with PDF, all three of them are fairly mainstream, right? I mean, there isn't a person who isn't using PDF today, whether you're a business communicator Or whether you're a creative. But we definitely think that it's a much larger opportunity because it's crazy in this day and age that in education, Still the way you do papers is by writing a few lines and there's no multimedia associated with it. A lot of our vision for what happens in creative and how it becomes more mainstream is that media creation just becomes a fundamentally Inherent way of people communicating.
Yes. I'd say just in general, I agree completely, Wissant, and not just in general. But in general, I characterize the TAM in 3 buckets for digital media. It's the core. It's our market expansion and value expansion.
If you look at the core, Still a lot of opportunity there. There's still migration left in the millions there. There's opportunity in higher education, both at the institution and at the teacher level. There's opportunity with new creatives coming into the market. When we talk about every story, every surface, there's a large Building demand for content and new creatives are coming into market to fuel that demand for content.
Then you turn to market expansion and this is true also in the Document Cloud business, you have new use cases for video, online video that are opportunities that we haven't even Yes, begun to scratch. You saw what we did with Lightroom today, that it's going to expand a much larger photo enthusiast opportunity in addition to growth in the core professional market. So There are expansions in the core. You see the use cases for Spark. There are very large use cases within small business and corporate For that style of communication, right?
And then you get to value expansion, you talk about stock, you talk about sign, you talk about collaboration, Services, review and approval services, you talk about new class new asset classes in stock, and it stacks up pretty quickly. Keep in mind also, in each one of those pillars, Every year we roll forward because we've realized more growth in those core markets as well. So we've added another year with the addition of another year on the backside of the TAM.
Matt and I were on a Texas swing meeting with a large number of customers. And this was both in digital media and digital marketing last week. And What was very interesting was one of the largest retailers in Dallas, the person started off the meeting by saying my 11 year old kid is just learning in design 1st, and can you please help us with some more, in design, what we can do to help training and get inspired. And then on the way back at the airport, somebody was using all of our video products. And Matt said, I'd be happy to give them Complimentary subscription, in this particular case.
And so I just the good news was they said, no, no, don't worry about it. We already have a subscription. Can you just send us an Adobe T shirt because that would be so it's more widespread that you might realize this Inherent desire to communicate and the fact is we're the gold standard of all those products, Kash.
Hi. I'm Michael Nemeroff, Credit Suisse. A question on the margins, Mark. Super impressive, you've got back up to the peak margins from fiscal 2,008. I'm curious, where do you see that peaking now?
As a good analyst, I'm
going to
have to ask you where you see that long term margin? And how do you balance that growth versus investment margin perspective?
I'm shorter than all these guys because they keep beating me down for money. No, it's like I said, I can't comment on where they go, to be honest with you. I mean, I think we're thrilled that we're back To the peak that we used to be at because I know for a lot of you that was a question. If you look at the 2 businesses, they're in different places right now. In Brian's business, moving from a channel oriented business to most of the business going through adobe.com with some Enterprise sales and Matt's organization, it's obviously more profitable than it used to be.
In Brad's and I think there's opportunity there. In Brad's business, we're investing in that business for growth right now. It's not the time to drive significant margin in that business right now. So it all depends on what we think about our growth trajectory. So we balance margin with growth.
And we're comfortable with The margin for next year that we can do everything we need to do. Like I said, we're very good about managing costs in the company and reallocating resources Off of projects that aren't as much a priority onto more priority oriented things. And at the same time, it allows us to continue to hire net new. So It's a balance. It's a balance between revenue growth and margin growth.
But make no mistake, every one of us has a senior management team and you see us all here in the room, We're focused on driving long term growth for the company. So in no way should you look at what we are doing with respect to Next year and feel like we're not investing in the future of the company because we see so many opportunities.
Would you
look over here?
Walter Pritchard with Citi right here. Just Brian, you just kind of broke down core market expansion and value expansion. And I'm wondering, Mark, Garrett, as we think about kind of where growth has been coming the last, say, 3 years as you kind of got through the base transition and Now grown this year on multiple drivers. Can you help us understand maybe contributors of growth over the next 3 years in the digital media business versus how they've been the last 3 years. And I'm sure you're not going to give us numbers in those 3 buckets, but maybe qualitatively, how we should think about core market expansion and value expansion?
Clearly, in the beginning, it was more migration of the base. And we've said for a long time that that's a diminishing population. And you see that it's not as important anymore by the virtue of 40% new users come into the platform. So it's kind of shifted from Migration of the base to new users. And I think over time, services will play a much bigger role.
So it kind of Has gone in that order, I'd say. First, migration of the base, and there's still millions of people there, by the way. I don't know if you caught what Brian said, but There's still millions of people there to move over. We're continuing to attract more than 40% net new. That's kind of next, If you will and then services I think over time become a bigger and bigger part of the story.
And maybe one layer below Walter. I mean if you think about all apps Right. When we first started with the migration of the Creative Professional, all apps was at a high rate and the single apps Business, which is new customer expansion as well as was not as higher percentage. That certainly continued to grow As which you can consider that both core as well as expansion of new users. Individual users do tend to buy the single app.
When you think about the photography offering, that's certainly a market expansion that continues to be a huge driver of growth. No reason why that diminishes. But the new customer acquisition, as Mark said, and combating piracy, I don't know whether you put that in core or you put that in market expansion because They weren't a previously paying customer, which we would recognize as core, but they were certainly a creative professional. But I think you're seeing Objectively, a single app becomes a larger part of the business and then we migrate them to core, but as an on ramp or Getting attracting new customers to the platform, the photography stuff and stock and sign as we also said, Which is in the value expansion and services are becoming a meaningful part of the business and they should continue to grow at a higher rate But of a smaller base.
In addition to Acrobat.
And we
kept that on both sides of the business. But single acrobat, I can say that word, is quite a driver as well.
And one clarification, too, because I know I'm going to get asked this. The greater than 40% new is a cumulative number, and it was greater than 35% last time. So you can actually see the number of new users is driving the cumulative number of new higher and higher. So that's a key factor as well as you think forward. Next question, Jay?
JP Lee Sauer. With respect to this morning's new brands that you introduced, it was a Pretty strong showing of Adobe's IP as we might expect at max every year. But the question is, how are you thinking about the Incremental organic revenue or let's call it, imputed value opportunity per brand? In other words, might some of them be Relatively small incremental opportunities, more like, let's say, Photoshop Elements or Lightroom Classic that Might be not much more than $100,000,000 or so or less. Or might there be some that could be more like Stand alone full Photoshop, more in the mid-nine figures.
So how would you size some of the incremental opportunities, thinking about it that way relative to current products?
Well, again, this is Vijay, in terms of your model for each of the products That exists. I mean, first, one thing that I think you should also all be aware of is as the Book of business or as the ARR that's the complete offering and as we look at unbilled backlog, do not underestimate the amount of Retention improvement that happens as a result of people looking at it and saying we are getting ongoing Incremental value and innovation, right, whether it's the brushes that we put in Photoshop or whether it's the fact that These applications. So I just wanted to first set the context that as we deliver this innovation and you have those millions of customers who are using our product, Every bit that helps with retention and attraction of customers is also a meaningful thing. We don't do the silly thing of allocating that across each The products, but I just wanted to tell you conceptually how we think about it. I think of all the products XD is one that it just feels like Authoring for multiple screens is going to be a huge product.
As we said, we have about a 1000000 downloads now to date. Certainly, a number of them will either The Creative Cloud all app customers and there'll be Creative Cloud single app customers. So as we look at those categories In terms of the short term revenue impact, I would probably put XD as perhaps the largest Tributor or driver of new customer acquisition just to sort of subjectively give you some information. Spark is going to be a really, really large number. But as a result of the adoption and how quickly that will happen that may not have as material an impact In 2018 as maybe XD has as we think about the impact for the creative professional.
I think Dimension is a little bit more of Specialized product, it enables people who are doing video and we've talked about how video has been exploding for us from a New app category, so I think it cements character animator and dimension. Just makes us even more of the de facto standard. But I think it'll be existing video people or existing imaging people who actually use that as a way of extending Their skill set and improving there. So you have to look at each one of them slightly differently. And photography, I think, continues to be just a
large expansive opportunity for us. So that's how I would
look at it. And I For us, so that's how I would look at it. And I think there's still some questions that we will work through in terms of Lightroom versus Lightroom CC that we've certainly heard. But it was important for us to set this bit of that there's a next generation system of imaging that'll happen. And the Creative Cloud Photography plan is one of the most successful plans that we have.
And I think this moves the ball significantly down the field in terms of Innovation.
I think the question I ask myself, Jay, is first of all, you know that I plan every product to be like Photoshop. So just kidding. I think you differentiate between what products have the opportunity to be a platform play and kind of an application platform Where there will be ecosystems that build around that like we did with Photoshop, like we've done with Acrobat. InDesign. InDesign.
And then what products are really We wouldn't be doing it if we didn't think it mattered, but it really matters in more of a focused innovation sense. Like if you take Dimension, we're taking $75,000 out photo shoot budget for a car company and bringing that software. So that's a big deal for a fairly focused use case. I think photography in general, what we're doing with Lightroom, that is a very large platform play. That I think will, we will reinvent the next Decade of digital photography between what we're doing with our core application, what we're doing with Sensei at the core.
So I feel strongly about that. I think that XD has the potential to be The next generation InDesign on steroids because it touches so broadly about what people are doing with content and that shot in the steam of every story, every surface. And it goes beyond just people who are designing it. It goes to experienced designers, product managers, people who are creating the core assets coming out of Photoshop and Illustrator who will integrate into that. And then you think about beyond the core design, who needs to be involved in that conversation at an organization levels?
For every designer, you have more than 10 stakeholders in that conversation that will So I think that could be end up being a very rich application platform play. Hopefully that helps.
Keith Bachman from Bank of Montreal. I also wanted to ask about Experience Cloud and how your customer set is changing. What I mean by that is, what are the digital agency or the agencies broadly speaking playing a larger role in decision making processes Given the expansion of your portfolio, how is that impacting the competitive dynamics? And how is that impacting sales cycles?
We take it.
Yeah. I I you know, it's interesting. I think the dynamics, the makeup of the customers has more or less Stayed the same in terms of the logos, the brands. But again, back to what we've talked about, who we're selling to I think has We still have the CMO. We pioneered really SaaS software selling at the CMO, but we've moved to other, I would say, CXO level executive.
The agencies, the Publicis, the WPPs, those folks, we've been successfully selling, co selling with them. They've been referring business to us for a number of years. They've been amongst our largest go to market partners. And Matt's organization manages this. I wouldn't say that they're exerting more or less control than they were in the past.
They're still, for the companies that they're in, are they are an important partner to Clients in their broader digital transformation story. But for us, it's important that we have a direct, cut and Really our customers want a direct relationship with Adobe. They want to work with us. So we are in there We are in there working side by side, not just with the agencies or the SIs who we're partnered with, but with the customer because it's Partly just about technology. And this is where agencies and SIs I think are starting to see the opportunity.
One thing is to put the technology in place, but there's a whole people and Process, element to this broader digital transformation because this, at the end of the day, this is like ERP and CRM. Those those enterprise transformation wave, It wasn't just about the technology. It changed the way that you work. This whole re platforming around experiences is changing the way that enterprises have to work. And SIs and agencies have, I'd say, a big part to play in helping companies transform there.
Hey, guys, over here. Alex Zukin with Piper Jaffray. I wanted to ask Mark or Shantanu, could you given the over 40% of new customers coming for new subscribers coming from new to Adobe, Could you compare and contrast those cohorts of new customers to Adobe versus existing converted customers in terms of their churn rates, your ability to upsell them and then maybe initial ARPU and maybe any other similarities or differences you think are important.
I think relative to what we talked about even when we started the journey, first across all cohorts, The retention continues to be something that we are happy with and the attrition continues to be something that is below the levels that we had talked I think it's as a result of the continued innovation making the training more accessible. I think it's fair to say that The first set of the most avid customers was probably the highest retention rate, but I don't want to give anybody the impression that the retention rates have Change dramatically because if you're a new creative professional and you come to the platform, you're still just as You're still just as dependent. You're still taking as much advantage of it. So we do measure by cohort. So that's a it's a really good question relative to how we look at it.
All of them have been healthy. The first ones were probably the healthiest, but that's not in any way to imply that the current ones are not healthy for The creative applications and retention and ensuring that retention continues to be top of mind is the one thing. In fact, everybody in the company Is measured both in the digital marketing business and in the digital media business on continuing to drive retention and to lower attrition. In that category, sorry, the one other thing I might say is, in that category more than an existing customer, they might come Starting with a single app, if that was the second part of your question. And then they upsell from single app to the complete app.
And we definitely monitor that and we continue to focus With our marketing campaigns using Brad's technology to upsell them from the single app to the multiple app. Single App is a good on ramp to the Creative Cloud.
Saket Kalia from Barclays. One question for you, Mark. On the margins, the 40% margins, clearly, we have 1 much larger business With much more mature margins and very healthy growth and much one much faster growing business where we are investing for growth. The question is, when that growth in Experience Cloud does moderate, who are you going to benchmark that business to from a margin perspective? Yes, it's an interesting question because there's not a lot of mature SaaS businesses that have gotten margins up into the 20s or 30s.
I think to the extent that, that business dramatically slowed, we could drive a lot more Margin because Matt wouldn't have to add the sales capacity. I mean, if you think about the 2 businesses, they're very different from a cost Profile perspective, right? In Brian's business, you've got 90% gross margins. And Brad's, they're in the 80s because you've got Tens of thousands of servers around the world that are hosting the product. Brian's business, you've got adobe.com, where most of the business is sold through Our website, Brad's Business, it's a direct sales force through Matt's organization, which clearly costs more money.
So they're always going to have very different margin profiles. But I think to the extent that growth started to level off, if you will, or come down, we could clearly drive more margin on that side of the business. Hard to say who to compare to. I don't know of a public SaaS software company at scale, that's mature enough to have had that happen yet, frankly.
You would argue that there's nothing inherently different in enterprise companies
of
scale and what margins they were able to accomplish when They were really slow growth. I think in the SaaS based business everybody looks at it right now as a big growth opportunity And that's where we're investing for growth. And I think most companies when they talk about it say you can drive margins. We are So focused on getting customer value and customer satisfaction right now. But I think you can look at other companies of that scale and as
As you have to be just a little bit careful of is that there is this cost of delivering SaaS versus an enterprise sales company that's not SaaS.
Next question.
Thanks. It's Brent Thill from Jefferies. Shantanu, you're 5 for 6 at the plate beating on the targets the last 3 years. When you look at Experience Cloud, If you could rewind the clock, is there something that you think you could have done to make that better than where You came in. I have a question for Brad, just to follow-up.
If somebody had told me a few years ago that we'd create a $2,000,000,000 business, We'd be ranked as one of the most innovative enterprise software companies that would be fundamental to every enterprises conversation around
digital transformation that everywhere we went in the
world, we'd be talking about Information that everywhere we went in the world, we'd be talking with the heads of the businesses and them telling us, hey, Adobe is fundamental To our future, I'd say I'd take that in a heartbeat. And so I think we were first to recognize that as an opportunity. I think what We have done as a team is say this is a much larger opportunity. And I think, Brent, when you look at that and you focus on, okay, are you creating it? I mean, Even companies at $2,000,000,000 they're a verified atmosphere as you know.
And so I think we look at this and Brad alluded to this as when you're going from 2 1,000,000,000 to 5,000,000,000. How do you really put in place the processes, the structure? I think if you talk to Anne or if you talk to Matt, they would say Our brand permission is there. The opportunity is there. And maybe at some level, maybe we by being a little bit more transparent than companies normally do in Q3, we're dwelling on it a little bit Normally do in Q3, we're dwelling on it a little bit more.
It in no way diminishes our opportunity and in no way Diminishes our excitement about being there. I think we're just a company that we'll tell you like it is, and that's the way it is. But I mean, for somebody who's been tracking us No one's complaining
about 20% growth.
So Pardon?
What did you say?
No one's complaining about 20% growth.
I was just curious if you
had that. Right.
And Brad, can you just unpack the Experience Cloud? There's a lot of questions about you take the 2 businesses, you have marketing, which everyone sees Salesforce and Oracle, and Everyone seems to have an e mail management system and a content system. And then on the ad side, you're swen with 2 giants in Facebook and Google and you have Trade Desk I think it's done pretty well in that segment on the ad side. Can you just give us a sense of what you think is happening between These 2. And are you putting more emphasis on advertising going forward?
So is the question in each of those categories competition or just going on?
Just give
us a sense of what's happening, because I think there's a feeling from Wall Street that the marketing piece of it is more saturated. The advertising piece is more open, but there are bigger behemoths that you're just swimming with completely different animals in the water that you've seen before.
Got it. Well, first on this, the fundamental, the marketing piece and the analytics piece, the I couldn't disagree with the sentiment. If that's a sentiment that is out there, let me know who that is because I'd love to talk to them. There's by no means are we we're at a I would say a massive growth inflection point there because what used to be marketing processes have now become the way that you have to go across the enterprise. And so I would say much like where we're investing, if you if you ask me where what are the fundamental tenants of the innovation that we're going to drive In the enterprise for the next 5 to 10 years.
And what do enterprises have to do about that? It it the old the ERP and your CRM systems, every every system that you have is It's fundamentally ill suited to deliver on your customers' expectations in the future. And so whether that's the marketing cloud, analytics cloud that's there, The entire architecture needs to change. You have to have a modern architecture for customers in today's day and age in order to move at the pace and the agility that you need. And so, across marketing and analytics, that's the, not only is it the biggest TAM, I think it's the one that's Undergoing the most disruption.
And that's a pretty heady claim given the disruption that's happening in advertising. But the fundamental enterprise architectures have And it has to be modern and it has to be different from what it is today. On the advertising side, I would say, for us, certainly Facebook, Google, and What they're doing in in some of the formats of advertising is, you know, is there. We see that they're great partners of ours. We're actually bringing a lot of demand to their platforms.
But you look at what's happening now in linear TV and programmatic TV, even across display and search, There's still a lot of innovation that's happening there because you bring the audiences that you find on your site and who are the most valuable. And then you bring that to the advertising cloud. To us, it's the synergy between those two that makes this entire thing go. And that's why I think we're so unique in the way that we think about this broader Experience Cloud category. Because it's not even each of these opportunities individually.
It's how the data and the content start to flow between all of them that I think number 1 drives our competitive differentiation, but 2 gives us confidence that this is a long term sustainable growth opportunity.
That's the
way I'd frame that.
Over here. Angelica?
Thank you, guys. Thank you for this is Keith Weiss from Morgan Stanley. Thank you for the additional detail. One correction to Saket's question. Think your high margin business is actually growing faster than your low margin business in your FY 'eighteen guidance, which is very impressive indeed.
Digging into the price increases, just a clarification, does this extend into the enterprise businesses anywhere, the enterprise creative cloud or the ETLAs? Or is this just for sort of the single product and the team's attrition?
The enterprise ETLAs actually have a pricing that's in many cases Different from what we do with either the team or the individual, Keith. And so in many cases, as they adopt services, I think our intent with enterprises is actually to drive a higher average revenue per user in the enterprise, but it's different. It's different because like all of these large enterprises as they decide on the term license agreement, there's negotiation that happens in that. A lot of this has to do with what goes through the channel as it relates to team as well as on adobe.com and on adobe.com.
Next question.
Hi. Nandan Amlari, Deutsche Bank. Question on the Dynamics partnership.
Is this focused In the mid market
or do you also have
focus on the larger
enterprises? Microsoft, I mean, again, maybe just touching taking a step back. I mean, I think what's exciting about the Microsoft partnership is, As Brad said, when we think about the entire customer journey and you're trying to close on the entire customer journey, our Desire and our intent to integrate with more applications to provide that end to end customer journey, whether it's Through CRM, whether it's on the support side, whether it's on the visualization side, it just becomes a fundamentally more important thing. The hard and heavy lifting that we did In that particular case, was also agree on what that customer journey Symantec model looks like. And I would not Underestimate the importance of 2 large companies agreeing on that because the value then to a customer is you can finally talk about A customer journey with the same vocabulary across disparate systems, which has really never been done before.
I think maybe to your point about where We may be seeing traction with Dynamics, whether it's Ignite or, pardon? Envision. Envision, exactly. All of the Microsoft things. We're now one of the key partners that are doing it.
Microsoft has traditional strength in the enterprise. They also, to your point, have traditional Strength in the mid market. And again, what we are really proud of in that space is unlike other press releases, we're open for business. We have A version of Campaign that's running on Azure. We have integration between our Campaign product as well as their Dynamics product.
We have Integrated with Power BI, we use Power BI to run a large part of our own business as we look at what's happening in that particular case. And we have AEM And Managed Services available on Azure. So with Microsoft's reach and Microsoft's depth, I think we will see Certainly traction in the enterprise, which is where Matt and his organization. And if they drag us in even more into the mid market, that's great as far
as we're concerned. I think that's exactly right. I would just say one more on it.
I'm glad you're agreeing with me as well, Brad.
It's very easy to agree with him. But from a technology standpoint, certainly campaign and Dynamics, as Shantanu mentioned, AEM on Azure. But fundamentally, the data platform that we're building that is going to be so fundamental to this next generation of enterprise architecture, We're collaborating and building that, with Microsoft and on Azure. And so we just think that there's an opportunity there To not just create a go to market, motion around Dynamics and, and our products, but Build some fundamental technology that I think enterprises are going to need over the next 5 to 10 years.
Maybe as a follow-up, to have Abe joined the conversation. If you can give us an update on how things are going and working with Microsoft on cloud tech.
Well, I think and Brad and Shantanu, I think, covered this in quite The key part in addition to all the go to market benefits to Brad's point earlier, if you look at the Experience Business Transformation, The current enterprise architectures are just not going to cut it. I think you have back office systems that are decades old. You have CRM systems much more focused on B2B Transactions. And the one piece with Microsoft that Brad alluded to that we are super excited about is not only is this of current solutions that we both have between Dynamics on their side and Power BI with Campaign and Analytics, we both have a very Ambitious and aligned view of what that future enterprise architecture looks like, unified around customer profile, deep inside Our view on AI and their view on kind of what they are doing at AI platforms is quite aligned. So the area where I would say That is a much more long term bet for both companies.
Where I'm excited about from a tech standpoint is even as we take joint solutions to market today, We are laying foundation of a fundamentally different architecture between what we are doing and what they are doing. We announced at a summit in March, to Shantanu's point, Something called XDM, Experience Data Model. We're really getting semantic alignment between how our solutions and Microsoft solutions Can be integrated out of the box for customers. So if you buy products from Experience Cloud and Microsoft Dynamics, Power BI, their AI stack, Out of the box, they are fully integrated with each other. And that dramatically shortens a customer's adoption and implementation cycle.
So a lot of exciting things there. I think they are fantastic to work with. They're kind of right now heavily, heavily. We have massive engineering teams working together day in, day out. So lots of great progress there.
We'll take a couple more questions, if there are any.
There's one there. Okay.
That quarter.
I count 2.
Hi. Samad Samana from Stephens. Brad, this question might be for you, but The slide deck show the ARR of the top 100 customers in marketing was $4,900,000 And by my math from last year, that's up about 11% from last Your slide. I'm curious how much of that you'd attribute to adding larger customers. So the composition of that top 100 versus Existing customers adopting more of what Adobe has to offer.
And then in that vein, how do you think that $5,000,000 average Compares against what the spend of those organizations is, right? So how much of the wallet share are you capturing and can you capture going forward?
Yes. So, I would say, and this is one, Matt's team is the team that's driving this conversation and we've had a very specific Go to market motion around cross selling new solutions into customers who are using One solution, 2 solutions. So this could be, I'm using the Analytics Cloud and Audience Manager is the product that I'm using. And I'm going to go in and Cross sell, analytics or, or Adobe Experience Manager. And the cross sell motion has worked For us, and it will continue to work.
That's one growth lever. The second one is, because we're a capacity business, We are utilization based for the most part across the different solutions and the products to where you also buy more of the product that you're using, to where My business has grown, my traffic has grown, I've got more audiences I want to manage or I've got more websites I want to manage. And so then I buy more of that solution. And so I would say the ARR growth is being driven by both of those within existing customers, both cross sell and up sell. And then, you know, I would say in the Global 1,000, our new logo business continues to grow to grow as well.
Because For us, getting in with a single product in even in the Global 1,000, that is success because we do know that Cohort will grow over time and will cross sell. As you saw, the average number of solutions of the top 500 customers is now well over 3. And if you go if you follow this a couple of years, you'll know that we've seen a dramatic increase in the number of solutions for that cohort that are there. So that's the way that we think about the different growth levers in those customer conversations.
Any other questions? There's one in
the back right corner there.
Okay. Back there.
Thanks. It's
tough in the back corner here. Derek Wood at Cowen. Mark, could you see benefit for next year expectation? And then confirm when does that start? Does that step up in Q1?
And then remind us where your hedges are, when the next hedge goes on and
Yes. So the revenue line that we showed you and the revenue guidance that we showed you is based on current rates. There's a footnote in the slides that's Got even more detail behind it, but it's basically revenue is at current rates. ARR, we keep in constant currency. So the ARR that you see there is based on rates that we the ARR is based on the rates that we had at the end of last year, The end of 'sixteen and they held constant through 'seventeen.
So ARR will be revalued up is our estimation at the end of this year Significantly, I don't know if I want to throw a number out there because it depends on what rates do here for a little while, but you should expect a material increase to ARR at the end of the year for FX. As it relates to hedges, we typically hedge, I'd say, up to 3 quarters out. So we're already hedged Three quarters out and then each quarter we add another quarter on the end of that.
I think that's the last question. When we get a question on hedging, One last one.
Chris Fortson, East Grove, and congrats on an awesome conference. I just have a question on the net new cumulative 40% number. Sorry, but if you're cumulatively net new 40. Does that mean that your percentage of new customers in 2017 is materially higher to Mark's point that migration is less of a driver now?
Yes. I think we've been saying for a while that migration is less of a driver than the new customer acquisition that's happening. And Again, part of the reason why we don't talk about actual subscriber numbers is because of the diversity of the offerings that are happening. But in terms of attracting, I think we have something north of 150,000,000 Adobe IDs that have been created. So these are people who May have tried trials, they may be using one of our free products.
And so I think that gives you hopefully some estimate of what's happening with respect to new people coming to the platform and trying it. But I to your point, clearly new customer acquisition continues to be a Significant area of focus for us with all of these new offerings, whether it's single app or business communicator. But the book of business is becoming larger and so that also Has to be a significant area of focus for us as it relates to retention. So both continue to be really important drivers for the business. And Since that was the last question, I mean, again, I think on behalf of the entire management team here at Adobe, for those who joined us on the webcast, Thank you for joining us.
But for those of you who are here at MAX, we really appreciate you coming in and being Post to all of the innovation that we're delivering on behalf of our customers. We've been doing this for a while, but I thought that this year's MAX was The best in terms of the amount of innovation that we've provided. And we continue to be excited by these 2 large growth opportunities that we have in Empowering people to create and helping businesses transform, I think just fits in so well with our mission of Changing the world through digital experiences and we remain focused as a management team and as an entire organization on executing against that. But Thank you for joining us today. Mike?
Thanks, everyone.