Adobe Has the Users. Now It Needs Better Growth

Verdict: The core debate over Adobe is no longer about product adoption. It is whether rapid user growth and AI first revenue can become large enough to lift the company’s overall recurring growth. With Anil Chakravarthy taking over as chief executive on December 1, investors also need to learn whether he will keep the current plan or change how Adobe turns that reach into paid growth.

What happened

Adobe beat third quarter expectations, with revenue up 13% to $6.76 billion and adjusted earnings of $6.13 per share. AI first annualized recurring revenue exceeded $650 million and grew more than 150% from a year ago. The softer piece was fourth quarter revenue guidance of $6.80 billion to $6.85 billion. Its midpoint was only slightly below Wall Street’s estimate, while Adobe still raised its full year revenue and earnings targets.

The leadership change was not announced with earnings. Adobe announced last week that Anil Chakravarthy will replace Shantanu Narayen as chief executive on December 1, while Narayen becomes executive chair. The company also said Creative and Productivity leader David Wadhwani will step down on September 27 and remain as a senior adviser for a transition period. Adobe shares had already reacted to that announcement before falling again this morning following the quarterly outlook.

Why it matters

Adobe is proving that people are using its products, but the company still needs to show that this engagement can lift the larger business. Total monthly active users grew more than 20%, creative freemium users grew more than 70%, and AI first annualized recurring revenue grew more than 150%. At the same time, total annualized recurring revenue grew 11.2%, while remaining performance obligations, which represent contracted revenue not yet recognized, grew 8%. That does not mean the freemium strategy is failing, but it explains why investors are still waiting for stronger proof that rapid AI adoption will materially accelerate overall growth.

What changed in the thesis

The market must now consider that the software boom might be less of a sudden revenue cliff and more of a slow grind. If the monetization curve is flatter than modeled, the premium valuation attached to software leaders becomes harder to defend in the near term.

What the market may be missing

The fourth quarter guidance miss was small, and Adobe still raised its full year revenue and earnings targets. The company generated $2.52 billion in operating cash flow and repurchased about 9.5 million shares for $2.23 billion, or roughly $235 per share. The bigger financial advantage is Adobe’s asset light model. It spent just $85 million on capital expenditures during the quarter, leaving it far less exposed than infrastructure providers to the cost and execution risk of building data centers.

Valuation and expectations

Adobe is no longer trading like an unquestioned premium growth company. At Thursday’s closing price of $248.83, the stock was valued at roughly 10 times the midpoint of Adobe’s updated fiscal 2026 adjusted earnings forecast. That lower valuation already reflects a lot of doubt, but the stock can remain cheap if fiscal 2027 estimates have to move lower. The key valuation question is whether recurring revenue growth stabilizes under the new leadership.

Bottom line

Adobe is not showing broken product demand. It is showing a gap between rapid user growth and slower growth across the full business. The quarter was strong, the fourth quarter guidance miss was small, and full year guidance moved higher. But the leadership transition and slower growth in contracted revenue leave the thesis unresolved. Investors still need proof that Adobe’s fast growing AI products can become large enough to lift the whole company.

Why it matters this morning

Adobe is moving on its own idiosyncratic news while the broader market treads water waiting for inflation data. This isolates the stock reaction strictly to how Wall Street views the internal business transition.

Salesforce (CRM)

Software peers with large installed bases face the same scrutiny regarding how quickly they can charge for new capabilities without stalling user growth.

Oracle (ORCL)

Cloud and database providers remain part of the enterprise software ecosystem but have seen more immediate monetization through direct infrastructure demand.

Group takeaway

The enterprise software sector is splitting between companies selling the foundational infrastructure and those trying to sell application features. The application layer is taking much longer to show the revenue inflection that the market initially expected.

Bottom line

The next two earnings reports will test whether this was a temporary guidance reset or the beginning of a longer structural slowdown in software monetization.