I'm LongbridgeAI, I can summarize articles.Adobe (ADBE) stock fell ~2% in after-hours trading despite beating Q3 earnings and revenue estimates, driven by investor disappointment in Q4 guidance midpoint below expectations and slowing net new ARR. The company raised full-year outlooks and announced CEO succession: Shantanu Narayen steps down Dec 1, replaced by Anil Chakravarthy. Strong AI adoption and 1 billion monthly active users were noted, but concerns persist regarding competition from lower-cost AI tools and near-term subscription growth.
Adobe (ADBE) stock fell about 2% in after-hours trading Thursday despite the company beating Wall Street estimates and raising its full-year outlook. Investors appeared disappointed by Adobe's Q4 revenue guidance of $6.80 billion to $6.85 billion, with the midpoint falling slightly below Wall Street's expectations. Q3 Revenue rose 13% year-over-year to $6.76 billion, while non-GAAP earnings increased 15% to $6.13 per share. Both figures topped analysts' expectations.
The company also reported strong AI adoption. AI-first ending ARR surpassed $650 million, up more than 150% year-over-year. Meanwhile, monthly active users crossed 1 billion.
Why Adobe's Strong Results Weren't Enough
Adobe's fourth-quarter outlook may have been the first issue investors focused on. The company expects revenue of $6.80 billion to $6.85 billion. The midpoint is below Wall Street's $6.85 billion estimate.
Net new ARR was another concern. It fell about 36% to 37% from a year earlier. Management said the decline reflects its strategy of attracting more users through freemium products before converting them into paying customers.
That explanation did little to remove concerns about near-term subscription growth. Adobe's remaining performance obligations also grew 8% year-over-year to $22.16 billion. That was slower than the 14% growth in subscription revenue.
The company is also facing competition from lower-cost AI tools. Adobe has seen strong adoption of products such as Firefly and Acrobat AI. Investors remain concerned that AI startups could put pressure on its core creative software business.
What Wall Street Sees Next
Adobe also announced a leadership change alongside its earnings report. CEO Shantanu Narayen will step down on December 1 and become Executive Chair. Anil Chakravarthy will take over as CEO.
The transition comes at an important time for Adobe as it works to turn its AI products into a larger source of revenue. Investors will want to see whether the new leadership can maintain Adobe's position in creative software while expanding its AI business.
Adobe raised its full-year revenue outlook to $26.58 billion to $26.63 billion and its adjusted EPS guidance to $24.45 to $24.50. The stronger annual outlook gives investors a reason to stay positive. However, the weaker near-term signals explain why the stock failed to rally after the earnings beat.
Is ADBE Stock a Buy?
Adobe's stock has a consensus Hold rating among 27 Wall Street analysts. That rating is based on eight Buy, 16 Hold, and three Sell recommendations issued in the last three months. The average ADBE price target of $267.94 implies about 8% upside from current levels. These ratings could change after the company's financial results.