Key Takeaways:
Adobe Inc. (NASDAQ: ADBE) reports fiscal third-quarter results after the US close on Thursday, with consensus at $6.69 billion in revenue and $6.08 in adjusted earnings per share — a bar the company has cleared repeatedly without winning over shareholders.
"They don't just need an earnings beat, they need to change the narrative," Jay Woods, chief global strategist at Freedom Capital Markets, wrote in his weekly newsletter.
The software maker guided for third-quarter revenue of $6.67 billion to $6.72 billion and non-GAAP earnings of $6.05 to $6.10 a share. Those figures imply roughly 12% revenue growth and 14% earnings growth from a year earlier. Adobe has beaten both revenue and earnings expectations in nine of the past 10 quarters, yet the shares have risen after only two of the past 12 reports, and have fallen after 15 of the past 20. The stock closed at $254.86 on Wednesday and is down about 27% this year.
The debate has shifted from adoption to monetization. AI-first annual recurring revenue topped $500 million at the end of the second quarter, more than tripling year over year, while Firefly ARR approached $300 million after growing roughly 50% sequentially. Total Adobe ARR reached $27.1 billion. Adobe expects total ending ARR to grow 10.2% in fiscal 2026.
Net new ARR is the number that matters most. TD Cowen reaffirmed a Hold rating and $245 target on September 9, citing a lackluster second quarter in which organic net new ARR growth registered negative 3%, and a $500 million reduction to the company's second-half ARR projection. TD Cowen models negative 25% net new ARR growth for the second half. Independent US credit card transaction data showed Adobe's transactional dollar growth at 0.5% in the third quarter, down from roughly 5% in prior quarters.
RBC Capital analyst Matthew Swanson raised his target to $315 from $285 while keeping an Outperform rating. He expects broadly in-line third-quarter results but said "a path to ARR re-acceleration remains the key to company-specific multiple expansion." Barclays forecasts net new ARR of $400 million for the quarter, with potential upside to $420 million. Mizuho lifted its target to $260 with a Neutral stance, and Stifel holds $200.
Goldman Sachs software analyst Gabriela Borges told The Information that successful incumbents need to reduce technical debt, innovate and monetize their AI products. "I think Adobe is a little bit still figuring out where they are in that process," she said.
Adobe has expanded freemium access to widen its funnel, accepting near-term ARR pressure in exchange for more users. The company added AI features across Firefly, Premiere, After Effects and Acrobat, and on Wednesday rolled out Acrobat capabilities including interactive reporting, audio summaries and enterprise Knowledge Base search. Acrobat now handles more than 400 billion PDF documents a year, and Student Spaces passed one million monthly active users in beta.
Leadership adds a second variable. Anil Chakravarthy becomes chief executive on December 1, with Shantanu Narayen moving to executive chair, and Creativity and Productivity president David Wadhwani departs September 27. The incoming CEO inherits the task of converting an expanding AI portfolio into faster growth.
Adobe trades at a price-to-earnings ratio of 14.67 with an 89.4% gross profit margin. A credible case that AI lifts recurring-revenue growth is what would justify a richer multiple; without it, another in-line quarter likely extends the pattern of beats followed by selling. Investors get the answer after the close on Thursday, with the December 1 CEO handover as the next scheduled checkpoint.
This article is for informational purposes only and does not constitute investment advice.
