Adobe raised its full-year revenue and profit guidance after its fiscal third-quarter results beat the company's own forecast, even though the stock is still down nearly 30% this year on fears that AI could disrupt its business. Adobe also agreed to acquire Topaz Labs, whose technology will be integrated across its creative AI products.
Adobe's fiscal third-quarter revenue climbed 13% year over year to $6.76 billion, above the company's prior forecast of $6.67 billion to $6.72 billion. Adjusted earnings per share jumped 15% to $6.13, ahead of its earlier outlook of $6.05 to $6.10.
Freemium push drives user growth
Adobe has leaned on a freemium model to convert casual users into subscribers, offering free tools such as Adobe Express along with limited monthly generative AI credits. The company said monthly active freemium users grew 70% year over year to surpass 100 million in the quarter.
Among its segments, business professionals and consumers subscription revenue, which includes Acrobat and Express, rose 16% to $1.91 billion. Creative and marketing professionals subscription revenue, covering Photoshop and Adobe Experience Manager, grew 13% to $4.65 billion.
Full-year guidance moves higher
For fiscal 2026, Adobe now forecasts revenue of $26.576 billion to $26.626 billion, total annual recurring revenue (ARR) growth of 10.2%, and adjusted earnings per share of $24.45 to $24.50. For the fiscal fourth quarter, it guided to revenue of $6.8 billion to $6.85 billion and adjusted earnings per share of $6.30 to $6.35. Adobe also announced it has agreed to acquire Topaz Labs, an AI photo and video enhancement software company with more than 1 million users, whose technology will be folded into Adobe's creative AI products.
New ARR growth slows even as the stock stays cheap
New ARR growth has cooled, however: the metric fell 39% year over year. Meanwhile, AI ARR climbed 150% to $650 million, though it remains a small slice of total revenue.
The stock trades at a forward price-to-earnings ratio of 9 times fiscal 2027 analyst estimates. Motley Fool analyst Geoffrey Seiler said that for a high-margin software business growing revenue by double digits and generating strong free cash flow, that valuation looks like a bargain, and he suggested patient investors could consider buying at current levels.
Source: Motley Fool
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