Can Adobe's next CEO turn around its battered stock?

By Christine Ji

A leadership transition and lackluster annual recurring revenue growth have intensified questions about Adobe's near-term trajectory

After 18 years of tenure, Adobe CEO Shantanu Narayen will be stepping down from the position.

A leadership change and inconclusive evidence of artificial-intelligence momentum left Adobe investors with more questions than answers after Thursday's earnings report.

The company announced that CEO Shantanu Narayen is stepping down after 18 years. Narayen will remain CEO until a successor is found. He will maintain his role as chairman of the board.

His departure has introduced a new layer of uncertainty to Adobe's (ADBE) stock, which was already weighed down by AI jitters.

Analysts can't quite decide if the development is good or bad. On one hand, Narayen is viewed as a software-industry titan and leadership transitions risk leaving companies in limbo. At the same time, Adobe could use some change as its growth remains pressured.

While Adobe reported first-quarter revenue and earnings slightly above consensus on Thursday, the company failed to show accelerating growth in annual recurring revenue - the value of yearly subscriptions - and management didn't raise full-year guidance despite the beat.

Shares of Adobe were off 6% on Friday morning. The stock is down 28% so far this year.

The leadership transition likely amplifies the "already struggling AI disruption narrative," TD Cowen analyst Derrick Wood wrote in a Friday note. ARR for the quarter grew 10.9% from a year before to $26.06 billion, but fell a hair short of the 11.1% growth Wall Street was expecting.

Adobe has its own AI efforts in the works, but there are signs that external AI developments are weighing on the broader business. The company's stock-photography segment saw an unexpected slowdown this quarter due to increased use of generative AI. Additionally, customer acquisition is being driven by Adobe's "freemium" AI offerings, which have increased monthly active users but hindered ARR monetization, Wood added.

Wood maintained his hold rating and lowered his price target to $310 from $325.

Read on: Why Adobe's stock is falling despite an earnings beat

While Adobe's freemium push increases its user base, ARR will be hurt in the short term, according to Jefferies analyst Brent Thill. Management signaled that ARR could see improvement in the second half of the year - meaning that investors are still waiting for a "show-me" moment regarding AI adoption.

A CEO transition could be a positive catalyst for Adobe. "We think many will agree it is time for a change as the AI technology shift creates bigger challenges than ever before," Thill wrote in a Friday note. Thill's top pick for a successor is an internal candidate, David Wadhwani, who is currently the president of Adobe's creativity and productivity business. He has more than 18 years of experience at the company.

"A new CEO may reset targets to more achievable levels," Thill wrote, particularly regarding operating margins as the company pushes more-aggressive AI investments. However, the resulting estimate cuts could be received poorly depending on the investor group, Thill added.

While Bernstein analyst Mark Moerdler acknowledged that "this is not yet the quarter to disprove the bear thesis," he pointed to increasing generative-AI credit consumption, which he believes could be a positive tailwind later this year. Credit consumption increased 45% quarter-over-quarter, driven largely by video and audio generation.

Moerdler maintained his outperform rating but lowered his price target to $447 from $506, citing obscured visibility into Adobe's AI growth trajectory and the uncertainty brought upon by a leadership change.

"We don't believe CEO transition will necessarily be disruptive if the successor is familiar with Adobe's business and carries forward its strategy," Moerdler wrote.

-Christine Ji

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03-13-26 1132ET