Adobe (ADBE.US) has mixed results: active users broke 1 billion in Q3, ARR for AI products increased by 150%, and Q4 guidance was slightly lower than expected

The Zhitong Finance App learned that software giant Adobe (ADBE.US) released the report card for the third fiscal quarter after the market on Thursday — revenue of US$6.76 billion reached a record high, with adjusted earnings of US$6.13 per share doubling Wall Street expectations. The annual recurring revenue of “AI Priority” products increased by more than 150% year-on-year, and monthly active users broke the 1 billion mark for the first time. However, earnings guidance for the fourth fiscal quarter was not impressive enough, triggering a 2% drop in stock prices.

Q3 report card: Impeccable data, completely crushing expectations

For the third fiscal quarter ending August 28, Adobe's core indicators have surpassed market expectations across the board:

Subscription revenue accounts for more than 97% of total revenue, and Adobe's business model is still heavily dependent on recurring revenue. Remaining performance obligations (RPO) reached $22.16 billion, up 13.1% year over year.

Looking at customer structure, commercial and individual user subscription revenue was US$1.91 billion (YoY +16%), and subscription revenue for creative and marketing professionals was US$4.65 billion (+13% YoY), with a balanced growth momentum.

AI commercialization milestones: Adobe revealed that ARR for “AI first” products increased by more than 150% year over year, Firefly ARR was close to US$300 million, and paid users of Acrobat AI Assistant increased by more than 150% year over year. The number of monthly active users of creative and productivity solutions surpassed 1 billion, the first time in Adobe's history that this scale has been reached.

The Q4 guidance fell slightly short of expectations: market anxiety behind the 2% drop

Despite the impeccable performance in Q3, the Q4 guidance became a turning point in market sentiment.

Adobe expects revenue for the fourth fiscal quarter to be between US$6.80 billion and US$6.85 billion. The upper limit of the range is only the same as analysts' expectations of US$6.85 billion, and the median value of US$6.825 billion is slightly lower than the consensus estimate of US$6.84 billion. The adjusted earnings per share guide is between $6.30 and $6.35, which is essentially in line with market expectations of $6.33.

At the same time, the company raised its full-year guidance: revenue for the 2026 fiscal year is expected to be 26.58 billion US dollars to 26.63 billion US dollars, which is higher than the previous guideline of 26.5 billion to 26.6 billion US dollars; the adjusted EPS for the full year will be raised to 24.45 to 24.50 US dollars.

However, this combo punch of “exceeding expectations+upward guidance” failed to convince investors. Shares fell about 2% after the market. The root cause of this “performance exceeds expectations but is sold off” phenomenon is that Adobe is facing a crisis of confidence in its long-term survival logic. The advent of generative AI has made it easy for users to create visual media without using Adobe's expensive professional software, and many of the most popular new AI tools — from OpenAI's Sora to MiniMax Design — have come from competitors.

The “double-edged sword of AI”: both an engine of growth and an existential threat

Adobe's current core contradiction is that it is simultaneously on the beneficiary side and victim side of the AI narrative.

Beneficial side: Adobe's commercialization of AI is accelerating. ARR, the AI priority product, increased by more than 150% year over year. Firefly users showed significant consumption of generated credits when switching from free to paid, creating a new revenue model based on usage. Adobe Creative Agent (Creative Agent) has further expanded this model, and agents use the existing credit consumption framework to monetize. On the enterprise side, customer experience orchestration AI priority ARR increased fourfold year over year, and GenStudio ARR increased by more than 25%.

Victim side: The rise of AI-native tools is fundamentally shaking Adobe's pricing power. OpenAI recently updated its advertising policy prohibiting partners from running ads for their image and audio generation products that compete with ChatGPT's internal features, and Adobe was identified as one of the companies directly affected — cutting off an important customer acquisition channel for Adobe's independent AI creative tools. At the same time, Microsoft 365 Copilot has surpassed 30 million paid seats, and SEFTSE's AgentForce ARR exceeds 1 billion US dollars. The two giants are attacking Adobe from both sides of productivity and enterprise workflows.

Management turmoil: strategic uncertainty during CEO handover

Another factor fueling market anxiety is that Adobe is in a critical management transition period.

The company announced last week that it will appoint internal executive Anil Chakravarthy as the next CEO, which will take effect on December 1 to replace Shantanu Narayen, who has been in charge of Adobe for nearly 20 years. Chakravarthy was previously responsible for customer experience orchestration and global field operations, a division much smaller than the company's flagship creative department — a choice that surprised some investors. David Wadhwani, president of the creative and productivity business, who is regarded as a popular CEO, will step down on September 27. Additionally, the company is still looking for a chief financial officer — current CFO Dan Durn left in June, and senior vice president Steve Day as interim CFO.

Emarketer analyst Grace Harmon said, “Weak fourth-quarter earnings forecasts raise questions about how Adobe will continue to compete and what strategy its new CEO will adopt as AI is reshaping the creative software market.” Chakravarthy explained his strategic direction during the earnings call: transforming Adobe from a traditional creative tools company to an “agency software” platform for enterprise customers to provide AI-driven solutions in the three dimensions of creativity, productivity, and customer experience.

According to the analysis, the CEO transition was described as “the most important leadership change in Adobe's history” — in the era of generative AI redefining “creativity,” whether this internally promoted senior executive can lead Adobe to hold the throne will be the biggest highlight for the next few quarters

Conclusion: Adobe's “AI Crossroads”

Judging from any traditional indicator, Adobe's Q3 earnings report is perfect — 13% revenue growth, 20% EPS growth, $27.5 billion ARR, 1 billion monthly users, and 150% increase in ARR for AI products. However, at the historic turning point where AI is reshaping the creative software market, investors are pricing a fundamental question: Can Adobe's moat withstand the impact of native AI tools?

HSBC believes that the market has overestimated this impact, and that Adobe's user stickiness and deep workflow embedding form competitive barriers that are difficult to replicate. Bank of America Securities, on the other hand, believes that AI is continuing to erode Adobe's growth momentum. The gap between the two judgments is the “uncertain price” reflected in the current stock price of about $249.

On December 1, Chakravarthy will officially take over as CEO. His mission is not only to continue the transformation answers Narayan left behind, but also to construct new answers from Adobe in the AI era. For investors, the next earnings report and Chakravarthy's first strategic release will be a key window to test “whether Adobe can prove its AI moat.”

The bearish camp is represented by Bank of America Securities, which gave it a “outperforming market” rating and a target price of $190 when coverage was restored, believing that cheap generative AI tools threatened to replace its core software business and weaken long-term pricing capabilities. Morgan Stanley downgraded the rating to “reduced holdings,” and the target price was drastically cut from $365 to $240. Stifel maintains a “hold” rating with a target price of $225.

The bullish faction is represented by HSBC and raised the rating to “buy” with a target price of $308. They believe that “the market has overestimated the negative impact of AI design tools, and the current risk-reward ratio is already biased in a favorable direction.” CMB International maintained a “buy” rating, and the target price was lowered from $350 to $300, indicating that Adobe's AI products have strong momentum and attractive valuations.

According to MarketBeat statistics, the current Wall Street consensus rating for Adobe is “hold”, with an average target price of about $280 — only implying an upward margin of about 12% compared to the current stock price of about $249. Seven analysts gave “buy,” 21 “hold,” and 5 “sell” — this distribution itself reflects the deep division of the market over Adobe's future direction.