Adobe Beats Q3 But Soft Q4 Revenue Outlook Sends Stock Lower Despite AI ARR Surge

Adobe reported record third-quarter fiscal 2026 revenue of $6.76 billion and raised its full-year earnings-per-share targets, but a fourth-quarter revenue forecast of $6.8 billion to $6.85 billion that narrowly missed analyst expectations dragged shares down as much as 4.5% in premarket trading Friday before the stock recovered to roughly $248, approximately flat on the session.

The AI story inside the quarter was notable: AI-first annualized recurring revenue surged 150% year-over-year to $650 million, total ARR grew 11.2%, and freemium monthly active users hit 100 million, up 70% year-over-year, against a broader base of 1 billion total MAUs. Adobe also repurchased $2.2 billion of its own shares in the quarter, representing about 2.3% of market capitalization, with annualized buyback pace running at roughly 9.3%. Cash conversion reached a record 37.3%.

Analysts were split on what the results signal. Morgan Stanley reiterated its Underweight rating, citing limited evidence of a meaningful business inflection. JPMorgan cut its price target on monetization concerns. Stifel held its price target at $225 with a Hold rating. On the more constructive side, BMO Capital Markets reiterated Market Perform but raised its target to $270 from $230, Baird lifted its target to $250, UBS raised its target to $255, and Wells Fargo raised its target on enterprise growth. Oppenheimer and Citizens both reiterated positive ratings.

Longer-term concerns weighed on sentiment alongside the guidance miss. ARR growth has decelerated for ten consecutive quarters, with some analysts noting recent figures were aided by the Semrush acquisition rather than purely organic momentum. Adobe's shift toward a freemium strategy and a price freeze were flagged as signals of competitive pressure at the lower end of the market. The stock has fallen roughly 29% year-to-date, and an ongoing CEO transition added uncertainty for investors awaiting a clearer strategic direction from incoming leadership.