Why Adobe's stock is falling despite an earnings beat

By Christine Ji

Adobe's longtime CEO is stepping down, and the lack of acceleration on a key metric signaled that AI isn't driving significant financial benefits yet

Adobe CEO Shantanu Narayen will be stepping down from his position.

Adobe's fiscal first-quarter results largely cleared Wall Street's bar, but its modest earnings beat for the period wasn't enough to disprove the narrative around artificial-intelligence disruption that's weighed on software stocks.

One issue is that Adobe's growth slowed on annual recurring revenue, which at $26 billion was up 10.9%. The company posted 11.5% growth on the metric in its fiscal fourth quarter.

"We continue to believe that ARR reacceleration remains the focus for investors to get more constructive," RBC Capital Markets analyst Matthew Swanson said in a note to clients.

Additionally, Adobe CEO Shantanu Narayen will be stepping down from the role after 18 years, according to a company press release. He will remain as chair of the board and continue to lead the company until a successor is named.

Those developments overshadowed some of Adobe's financial highlights. First-quarter 2026 revenue was $6.4 billion, growing 12% from a year before. Analysts polled by FactSet were expecting $6.3 billion. Adjusted earnings per share came out to $6.06, beating the Wall Street consensus estimate of $5.87.

Shares of Adobe (ADBE) fell 7.8% in after-hours trading on Thursday following the announcement. Adobe's stock has fallen 19% so far this year as the company faces heightened competition from AI-native design and content-creation platforms.

See more: Adobe's stock is at a multiyear low, but the pummeling may not be done yet

The company's fastest-growing segment was Business Professionals & Consumer subscription revenue, which posted a 16% year-over-year increase to $1.78 billion. This category represents Adobe's Document Cloud business, which includes PDF and e-signature tools. Creative & Marketing Professionals subscription revenue - which encompasses Adobe's digital-media software - grew 12% to $4.39 billion.

Total annual recurring revenue exiting the first quarter was $26.1 billion, and total customers with over $10 million in ARR grew over 20% year over year, CFO and executive vice president Dan Durn said on the company's earnings call.

According to Adobe, "AI-first" ARR more than tripled year over year. Firefly, Adobe's family of generative-AI models, saw generative credit consumption growing over 45% year over year, with major use cases in video and audio.

Adobe is betting that its "freemium" offerings will attract new users and eventually convert to revenue growth. Management highlighted that monthly active users for those free offerings grew 50% year over year, to 80 million. The increase in traffic is expected to be a leading indicator for future ARR.

However, Adobe's traditional stock-photo segment - a roughly $450 million book of business - experienced a steeper decline than expected due to increasing usage of AI-generated imagery.

Adobe's forward guidance didn't signal to investors that much of a revenue acceleration is immediately ahead. Management noted that while usage is rising, the translation into revenue remains a "back-half" event for fiscal 2026.

For the current fiscal second quarter, Adobe guided for revenue between $6.43 billion and $6.48 billion and adjusted earnings per share between $5.80 and $5.85. Wall Street analysts were expecting $6.43 billion in revenue and adjusted earnings of $5.68. The company reaffirmed its full-year outlook of $25.9 billion to $26.1 billion in revenue.

Read: 7 software stocks to buy as the sector shows signs of life

-Christine Ji

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03-12-26 2029ET