Why Adobe’s Strong Performance Isn’t Translating Into Stock Gains

Adobe (NASDAQ: ADBE) stock continues to take a beating despite strong quarterly results. The company has been accelerating its AI initiatives, but the market is not fully convinced that it will be able to remain relevant in the emerging AI world. Its stock fell 14% in the after-hours trading session after the result announcement.

Adobe’s Financials

Adobe’s first quarter revenues grew 12% to $6.4 billion, ahead of the market’s estimates of $6.28 billion. Adjusted EPS of $6.06 also beat analyst estimates of $5.88.

During the quarter, Subscription revenues grew 13% over the year to $6.2 billion and product revenues were down 5% to $90 million. Services and other revenues were down 19% to $110 million.

Customer Group subscription revenues grew 13% to $6.17 billion with Business Professionals and Consumers’ subscription revenues growing 16% to $1.8 billion and Creative and Marketing Professionals subscription revenues growing 12% to $4.4 billion.

User metrics also remained strong during the quarter. ARR from its AI-first offerings more than tripled over the year. Overall, Adobe has a monthly active user base of over 850 million users, recording a growth of 17% over the year.

Adobe ended the year with revenues growing to $23.8 billion from $21.5 billion a year ago. EPS for the year grew from $12.36 last year to $16.70. It expects to end the year with revenues of $25.9-$26.1 billion and an EPS of $23.30-$23.50.

For the second quarter, The company expects revenue of $6.43-$6.48 billion and an EPS of $5.85-$5.90. The market was looking for revenues of $6.42 billion and an EPS of $5.68 for the quarter.

Adobe’s AI Push

Adobe is continuing to expand its AI offerings. Last quarter, it announced the availability of Acrobat, Express and Photoshop apps for OpenAI’s ChatGPT assistant. With Adobe apps for ChatGPT, users can easily edit and uplevel images with Adobe Photoshop, create and personalize designs with Adobe Express and transform and organize documents with Adobe Acrobat within ChatGPT. Users can use simple intuitive messages like “Adobe Photoshop, help me blur the background of this image.”, and the integrated offering will provide the new image with a blurred background. The apps are available free to ChatGPT users globally.

Adobe entered a strategic partnership with NVIDIA to accelerate AI-powered creation, production, and personalization. The partnership is aimed at enhancing Adobe’s creative and marketing workflows, models and technology with NVIDIA’s open models, libraries, research, and accelerated computing to help meet the growing demand for content. The two companies will work together to develop the next-generation Firefly models, deliver better creative precision and control for creativity and marketing pipelines and create new innovative marketing capabilities for brands. For instance, they are working on launching a cloud-native, brand identity-preserving 3D digital twin solution that will create virtual replicas of physical products that act as permanent digital identities for marketing and commerce experiences. With seamless interoperability across tools, this capability will allow brands to generate consistent pack shots, lifestyle imagery, configurable 3D product experiences and immersive virtual try-ons for their products.

Adobe also expanded its partnership with advertising company WPP to offer integrated agentic solutions for brands to optimize media and build brand content. As part of the partnership, the two companies will provide a single marketing solution that integrates Adobe’s AI capabilities, content platforms and data orchestration with WPP’s agentic marketing platform to deliver a connected approach to marketing transformation. By leveraging AI to integrate planning, creation, production and activation of creative and media assets, Adobe and WPP will be able to address the challenge of content teams having to produce more personalized content for more channels across audiences. They will provide brands with access to agentic AI workflows and orchestration from both companies. Where Adobe’s agents can create and adapt content, WPP’s agents are better at optimizing media spend and activating across channels.

Last year has been brutal for Adobe’s stock with its value eroding 21% in 2025. The stock is already down 22% so far this year. Adobe’s announcement that its CEO Shantanu Narayen will step down has not helped the stock. While it is evident that Adobe is betting heavy on AI to bolster its product suite, “investor skepticism about monetization timing and payoff” remain strong.

Adobe faces big threats from image and video generation AI tools. Tools offered by Canva, OpenAI, and even Meta can generate images and videos based on user prompts. Organizations, especially the SMB segment, don’t need multiple content creators, multiple content creation tools and expert content creators any more. Adobe remains confident in its capabilities. Its partnership with companies like OpenAI and Google are allowing it to integrate its offerings within these AI offerings. It wants to address competition from smaller players like Canva with products like Adobe Express. Its Semrush acquisition will also help its marketers remain discoverable in AI search. Its ARR and bookings growth remain strong, suggesting credibility to their belief. Even if Adobe is able to overcome the product challenges, its commercial model will be threatened. AI can drive pricing for these products lower, and away from license-based model to a pay-per-user model. Adobe will need to consistently innovate and acquire to stay ahead of the curve.

Its stock is trading at $241.13 with a market capitalization of $98.5 billion. It is a far cry from the high of $422.93 last May. It had dropped to 52-week low levels of $233.16 earlier this month.

Photo Credit: midiman/Flickr.com

Disclosure: All investors should make their own assessments based on their own research, informed interpretations and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.