Shares of Adobe Inc. fell more than 1% in after-hours trading today after a third-quarter beat from the creative software company came with a fourth-quarter revenue forecast whose midpoint fell below analyst expectations.
For the quarter ended on Aug. 28, Adobe reported adjusted earnings of $6.13 per share, up from $5.31 in the same quarter of the previous year, on record revenue of $6.76 billion, up 13% year-over-year. Analysts were expecting $6.08 per share on revenue of $6.69 billion.
Net income on an unadjusted basis rose 3%, to $1.83 billion, with a heavier tax charge eating most of the gain in pretax profit. Total annualized recurring revenue stood at $27.50 billion when the quarter closed. Operating cash flow of $2.52 billion was a third-quarter record, and the company put $2.23 billion into buying back about 9.5 million of its own shares.
On the earnings call, executives said annualized revenue from Adobe’s artificial intelligence-first products has passed $650 million after growing more than 150% in a year. Monthly active users across its creativity and productivity apps topped 1 billion during the quarter. Adobe has been building that audience partly through free tiers, which it warned in June would weigh on recurring revenue for a time, and creative freemium users alone now number more than 100 million, up over 70%.
Subscription revenue in the Business Professionals & Consumers group rose 16%, to $1.91 billion, the faster of Adobe’s two customer groups. Creative & Marketing Professionals, more than twice the size, grew 13% 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,” Chair and Chief Executive Shantanu Narayen said in the earnings release.
Anil Chakravarthy, who runs the company’s Customer Experience Orchestration business and worldwide field operations, takes over as chief executive on Dec. 1. Adobe named him on Sept. 3, six months after Narayen said he would step down, and Narayen will stay on as executive chair. The chief financial officer post has been filled on an interim basis since Dan Durn left in June.
The freemium strategy is widening the user base, said Steve Day, the senior vice president now doing that job. Agentic features are there to deepen engagement with those users, with an eye on what Day called “long-term durable growth.”
For its fiscal fourth quarter, Adobe expects adjusted earnings of $6.30 to $6.35 per share on revenue of $6.80 billion to $6.85 billion. Analysts had been looking for $6.30 per share on $6.85 billion in revenue, so only the top of Adobe’s sales range reaches the consensus.
The full-year revenue target moves up to $26.576 billion to $26.626 billion, from $26.50 billion to $26.60 billion in June, and adjusted earnings are now forecast at $24.45 to $24.50 per share. Adobe held its target for 10.2% growth in total annualized recurring revenue.
