Key Takeaways
- Adobe’s Q4 revenue forecast of $6.8B to $6.85B fell marginally below Wall Street’s $6.85B consensus
- Non-GAAP earnings per share guidance of $6.30 to $6.35 aligned with analyst expectations of $6.30
- Shares declined approximately 3% in after-hours trading, extending a 29% year-to-date decline
- Morgan Stanley maintained its Underweight stance with a $240 price target
- The company appointed Anil Chakravarthy as new CEO, taking the helm December 1
Adobe surpassed expectations in its Q3 earnings report, yet shares stumbled as the company’s forward-looking guidance came up slightly short of analyst projections. Trading at approximately $248.83 before the announcement, the stock retreated roughly 3% during after-hours activity.
Adobe Inc., ADBE
Third-quarter revenue reached $6.76 billion, representing a 13% increase compared to the prior year and exceeding Adobe’s internal projections by approximately 1%. Non-GAAP earnings per share hit $6.13, surpassing analyst forecasts. From a performance standpoint, the quarter appeared solid.
However, investors shifted their attention to future prospects. The company’s Q4 revenue projection of $6.8 billion to $6.85 billion fell short at the midpoint, missing the $6.85 billion consensus forecast. Though marginal, the shortfall was sufficient to dampen sentiment.
For Q4, Adobe’s non-GAAP earnings per share guidance of $6.30 to $6.35 matched the average analyst projection of $6.30.
The software giant also increased its fiscal 2026 revenue outlook by approximately $50 million, incorporating the Q3 outperformance. The company maintained its fiscal 2026 annual recurring revenue growth target at 10.2% and kept operating margin expectations at 45%.
Annual Recurring Revenue Deceleration Linked to Freemium Pivot
Total annual recurring revenue hit $27.5 billion. Net new ARR exceeded expectations by roughly $400 million, though the metric decreased 38% compared to the previous year. Adobe explained the contraction as a result of channeling more customers through freemium offerings instead of direct paid subscriptions.
Fourth-quarter projections suggest approximately $775 million in net new ARR, nearly doubling Q3’s figure while remaining 16% below year-ago levels.
Both remaining performance obligations and current RPO expanded by 8% and 9% respectively, decelerating from Q2’s 13% growth rate for both indicators.
From a user engagement perspective, total monthly active users exceeded 1 billion, marking a 20% year-over-year increase. Creative freemium MAU topped 100 million, climbing 70%. AI-focused ARR surpassed $650 million, representing 150% growth. Firefly App and credit-pack ARR expanded 40% sequentially.
Adobe maintains a gross profit margin of 89.4%, demonstrating robust pricing leverage throughout its software ecosystem.
Leadership Transition Compounds Market Concerns
Earlier in the week, Adobe revealed that Anil Chakravarthy, currently heading the company’s marketing and analytics software segment, would assume the CEO position on December 1.
The selection surprised many observers. Chakravarthy’s division represents a smaller portion of Adobe’s business compared to the flagship creative segment. David Wadhwani, the alternative internal candidate who led the creative division, is set to depart the organization later this month.
Morgan Stanley confirmed its Underweight rating on Adobe after reviewing the quarterly results, maintaining a $240 price target. The firm pointed to insufficient signs of a business turnaround. Shares had already retreated 29% year-to-date before the earnings announcement.
While Adobe’s AI-focused ARR surged 150%, investors continue to express skepticism about whether this expansion can counterbalance competitive threats from alternative AI-powered tools enabling content creation outside Adobe’s product suite.
The post Adobe (ADBE) Stock Slides 3% on Weak Q4 Guidance and Leadership Transition appeared first on Blockonomi.
Source: https://blockonomi.com/adobe-adbe-stock-slides-3-on-weak-q4-guidance-and-leadership-transition/
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