Adobe Stock Tumbles on Weak Q4 Outlook Despite Strong Third-Quarter Results

Adobe Inc. stock declined more than 1% in after-hours trading following the company's announcement of third-quarter results that exceeded expectations, but was tempered by a fourth-quarter revenue forecast that fell short of what analysts had anticipated.

During the quarter that concluded on Aug. 28, Adobe delivered adjusted earnings per share of $6.13, compared with $5.31 in the prior-year period, alongside record revenue of $6.76 billion, representing 13% growth year-over-year. The Street had been modeling $6.08 per share against revenue expectations of $6.69 billion.

Unadjusted net income climbed 3% to $1.83 billion, though a larger tax burden offset much of the underlying profit improvement. Annualized recurring revenue totaled $27.50 billion at quarter's end. The company generated $2.52 billion in operating cash flow, marking a third-quarter high, and deployed $2.23 billion toward repurchasing approximately 9.5 million shares.

During the earnings presentation, management disclosed that annualized revenue from its artificial intelligence-focused offerings has surpassed $650 million, having expanded by more than 150% over the past year. The company's creativity and productivity applications reached more than 1 billion monthly active users in the quarter. Adobe has expanded this user base partly by offering free access tiers, a move the company cautioned in June would temporarily suppress recurring revenue growth. Creative freemium users alone have grown to over 100 million, up more than 70%.

Subscription revenue within the Business Professionals & Consumers division increased 16% to $1.91 billion, outpacing the company's other major segment. The Creative & Marketing Professionals group, more than double the size, posted 13% growth to $4.65 billion.

Reaching a landmark of more than one billion monthly active users is a defining moment for Adobe, and I have confidence that Anil will build on this momentum to drive Adobe's next chapter of growth and innovation in the AI era.

Shantanu Narayen, Chair and Chief Executive

Anil Chakravarthy, currently leading the Customer Experience Orchestration business and overseeing worldwide field operations, will assume the chief executive role beginning Dec. 1. Adobe announced his appointment on Sept. 3, roughly six months after Narayen announced his intention to depart. Narayen will transition to executive chair. The chief financial officer position has been staffed on an interim basis following Dan Durn's departure in June.

The freemium approach is helping expand the user base, according to Steve Day, the senior vice president managing that initiative. Agentic capabilities have been incorporated to increase engagement among those users, with Day describing the objective as achieving "long-term durable growth."

For the fiscal fourth quarter, Adobe projects adjusted earnings between $6.30 and $6.35 per share on revenue ranging from $6.80 billion to $6.85 billion. Wall Street had anticipated $6.30 per share on $6.85 billion in revenue, meaning only the upper end of Adobe's revenue guidance aligns with consensus expectations.

The company raised its full-year revenue outlook to between $26.576 billion and $26.626 billion, up from the $26.50 billion to $26.60 billion range provided in June. Adjusted earnings guidance for the full year now stands at $24.45 to $24.50 per share. Adobe maintained its forecast for 10.2% growth in total annualized recurring revenue.