Adobe (ADBE) shares plunged over 7% on Friday, extending their year-to-date decline to nearly 37%, even after the software giant reported better-than-expected fiscal second-quarter results. The selloff was driven by a strategic pivot to accelerate user growth and AI adoption at the expense of near-term annual recurring revenue (ARR), raising concerns among investors.
For the quarter, Adobe posted adjusted earnings of $5.96 per share on revenue of $6.6 billion, surpassing analyst forecasts of $5.82 EPS and $6.5 billion in revenue. CEO Shantanu Narayen highlighted "record revenue" driven by AI demand. The company also raised its full-year guidance, projecting EPS of $24.35-$24.45 and revenue of $26.5-$26.6 billion, above Wall Street estimates.
However, the positive figures were overshadowed by Adobe's announcement that it will expand freemium offerings across products like Firefly, Express, and Acrobat, deferring planned price hikes to prioritize customer acquisition. Management acknowledged this could pressure ARR growth in the second half of the year, a key metric for software firms. JPMorgan analysts noted Adobe is "consciously choosing to invest to capture a larger, long-term opportunity presented by AI."
Adding to the uncertainty, CFO Dan Durn will depart on June 15 to join Marvell Technology, marking another leadership change as CEO Narayen prepares to step down. The contrast with AI-hardware darling Marvell, whose stock has surged 230% this year, fueled further negativity.
Ahead of the report, ADBE had already hit a 52-week low of $224.07, down 36% year-to-date, amid persistent AI disruption fears. Options implied an 8.7% post-earnings move. Analysts remain split: 17 Buy, 17 Hold, and 3 Sell ratings. Following the results, several firms cut targets, with Evercore ISI downgrading to In-Line and lowering its target to $225.
