Patrick Moorhead said Adobe’s focus on user growth over near-term revenue is like “investment protection” and should not be confused with demand weakness.
- ADBE stock dropped over 5% in overnight trading ahead of Friday.
- Adobe’s second-quarter results beat expectations, and the company raised its full-year guidance; Adobe said its short-term revenue would be pressured as it focuses on a “freemium” model.
- Stocktwits sentiment for ADBE jumped to ‘extremely bullish’ from ‘bullish.’
Adobe, Inc. shares tumbled more than 5% in overnight trading ahead of Friday, despite the Photoshop maker posting strong second-quarter results and raising its full-year outlook.
The decline followed management’s indication that it is prioritizing user growth over near-term revenue by continuing to offer “freemium” versions of its design and AI tools and holding off on planned price increases for its Creative Cloud suite.
“$ADBE Q2 FY2026: revenue $6.62B up 13%, non-GAAP EPS $5.96, both above consensus, and revenue and EPS targets raised. So why down after hours? The call answered it,” Patrick Moorhead, CEO of Moor Insight & Strategy, wrote in a series of posts on X.
“Adobe is choosing to lower second-half ARR [annual recurring revenue] from individual subscribers to go all-in on a freemium funnel for Firefly, Express and Acrobat, and is deferring Creative Cloud price optimizations.”
Moorhead said Adobe is making a strategy reset, which should not be confused with lower demand. “It’s more like investment protection. It’s a defensive position for sure,” he said.
Adobe has been one of the key casualties of the growing belief that AI could erode demand for some traditional software offerings. ADBE stock has already declined 16% this month, bringing the year-to-date drop to 37%.
“This shift will come at the cost of short-term ARR, but will accelerate user acquisition in MAU while building the foundation for long-term growth by removing friction from user onboarding, enabling deeper user engagement, and driving stronger lifetime value,” CFO Dan Durn said. “We’re confident that driving MAU, which has an impact on ARR, is the right trade-off and will drive future business growth.”
Notably, Durn is leaving Adobe on June 15 to become the CFO of semiconductor company Marvell Technology.
Adobe’s Q2 Recap
Revenue rose 13% in the second quarter to $6.62 billion, beating analysts’ expectations of $6.45 billion, while net profit rose $1.71 billion from $1.69 billion a year earlier. On an adjusted basis, earnings of $5.96 per share were ahead of the target of $5.82.
Adobe’s forecasts for third-quarter revenue and adjusted profit also came in higher than analysts’ expectations, and the company raised its full-year guidance.
The company now expects full-year revenue of between $26.5 billion and $26.6 billion, up from a range of $25.9 billion to $26.1 billion. It projected adjusted per-share earnings between $24.35 and $24.45, up from $23.30 to $23.50.
The company ended the quarter with $27.1 billion in annualized recurring revenue, beating analyst expectations of $26.6 billion. The metric is closely watched for software companies.
The freemium strategy appears to be bringing in gains. Acrobat and Express monthly active users grew to more than 850 million from 700 million year-over-year, while creative freemium monthly active users grew to more than 90 million from 50 million.
Retail, Analyst View On ADBE
On Stocktwits, the retail sentiment for ADBE shifted to ‘extremely bullish’ (93/100) early Friday, from ‘bullish’ the previous day. Post-results, traders believe the stock is a good bargain due to record revenue and an ultra-low forward price-to-earnings ratio of 8.8x, viewing current price levels as a historic entry opportunity.
“So, here we have record earnings again, and again, and again yet the stock keeps dropping. We have raised guidance, yet the stock keeps dropping. It can only get so cheap before big money buys this up,” a trader said.
Another wrote: “Huge software day tomorrow: ORCL and Adobe with double beats and raised guidance! Software companies [are] how AI gets implemented and properly monetized. No need to gamble on SpaceX IPO.”
Ahead of the results, noted investor Michael Burry offered a hat tip to the company. “Adobe with new management will have a treasure trove of assets that can be used to train anything Adobe wants to train better than anyone else,” Burry said in a comment on his Substack page. “Even if this is partially true, the market is underpricing the stock by quite a bit. Price matters.”
Last month, Burry published an analysis of publicly traded software companies and singled out Adobe as one of his top picks, citing strong momentum for its Firefly AI products, growing enterprise adoption, and the company’s deep integration into large organizations and creative workflows.
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