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Adobe's Q3 revenue rose 12.9%, while adjusted earnings increased 15.4% year over year.
AI-first ARR exceeded $650 million, growing more than 150% year over year.
Cautious Q4 guidance and intensifying AI competition remain key risks for Adobe investors.
Adobe (ADBE - Free Report) reported better-than-expected third-quarter fiscal 2026 results, with revenue and adjusted earnings surpassing Wall Street estimates. The software giant also raised its full-year targets, supported by steady subscription growth and increasing adoption of artificial intelligence (AI)-powered products.
However, a softer-than-expected fourth-quarter revenue outlook has raised concerns about Adobe’s competitive standing as rivals like Figma and Canva expand their AI design capabilities.
Adobe's Q3 Results Beat Estimates
Adobe generated $6.76 billion in third-quarter revenue, up 12.9% year over year and ahead of the Zacks Consensus Estimate by 1.02%. Non-GAAP earnings came in at $6.13 per share, rising 15.4% year over year and beating the consensus estimate by 0.82%.
GAAP earnings were $4.62 per share, up 11% year over year.
The company’s total ending annualized recurring revenue (ARR) reached $27.50 billion, increasing 11.2% year over year. AI-first ending ARR exceeded $650 million, growing more than 150% year over year.
Subscription revenue totaled $6.58 billion, up 13.7% year over year and accounting for 97.4% of total revenue. Product revenue declined 1.5% to $67 million, while services and other revenue fell 14% to $111 million.
Adobe’s AI Adoption Gains Momentum
Adobe’s AI business continued to expand during the quarter. Firefly ending ARR across the Firefly App and Firefly credit packs increased 40% sequentially, while AI-first ARR more than doubled year over year.
The company is also extending Acrobat capabilities to platforms such as ChatGPT, Chrome, Claude, Microsoft Edge and WhatsApp.
Higher Costs Weigh on Adobe’s Margins
Adobe’s strong revenue growth was accompanied by rising operating expenses. GAAP gross margin declined to 88.7% from 89.3% in the year-ago quarter. Operating expenses increased 14.8% year over year to $3.64 billion.
Adobe Reports Record Q3 Cash Flow
Cash flow from operations reached a third-quarter record of $2.52 billion, up 14.8% year over year. Adobe ended the quarter with $5.64 billion in cash and short-term investments.
Remaining performance obligations totaled $22.16 billion, up 8% year over year, while current RPO increased 9%.
Adobe repurchased approximately 9.5 million shares during the quarter and ended the period with about $24.55 billion remaining under its April 2026 repurchase authorization.
Adobe Raises Fiscal 2026 Outlook
Adobe expects fourth-quarter fiscal 2026 revenue of $6.80-$6.85 billion, with non-GAAP earnings projected at $6.30-$6.35 per share. The company expects a non-GAAP operating margin of approximately 44%.
Business Professionals & Consumers subscription revenue is forecast at $1.93-$1.95 billion, while Creative & Marketing Professionals subscription revenue is expected to reach $4.665-$4.695 billion.
For fiscal 2026, Adobe raised its revenue target to $26.576-$26.626 billion and its non-GAAP earnings outlook to $24.45-$24.50 per share. The company expects a non-GAAP operating margin of approximately 45%.
Ending ARR growth is projected at 10.2% year over year, based on the fiscal 2026 beginning book of business of $25.66 billion.
However, the fourth-quarter revenue outlook fell slightly short of Wall Street’s $6.85 billion midpoint expectation, per tikr.com. The softer guidance has raised questions about Adobe’s ability to maintain its growth momentum as competition intensifies.
Bottom Line
Adobe’s Q3 results highlight resilient subscription growth, accelerating AI adoption and strong cash generation. However, rising costs and intensifying competition in AI-powered design tools can pose threats. Hence, investors can play the stock with ETFs. The ETF approach minimizes the company-specific concentration risks.
Adobe-heavy ETFs include Fidelity Metaverse ETF (FMET - Free Report) , Invesco Next Gen Media and Gaming ETF (GGME - Free Report) , ARIA Opportunities ETF (ARIA - Free Report) and Motley Fool Value Factor ETF (MFVL - Free Report) . Adobe accounts for about 4% of each fund.
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Should You Play Adobe's Q3 Earnings With ETFs?
Key Takeaways
Adobe (ADBE - Free Report) reported better-than-expected third-quarter fiscal 2026 results, with revenue and adjusted earnings surpassing Wall Street estimates. The software giant also raised its full-year targets, supported by steady subscription growth and increasing adoption of artificial intelligence (AI)-powered products.
However, a softer-than-expected fourth-quarter revenue outlook has raised concerns about Adobe’s competitive standing as rivals like Figma and Canva expand their AI design capabilities.
Adobe's Q3 Results Beat Estimates
Adobe generated $6.76 billion in third-quarter revenue, up 12.9% year over year and ahead of the Zacks Consensus Estimate by 1.02%. Non-GAAP earnings came in at $6.13 per share, rising 15.4% year over year and beating the consensus estimate by 0.82%.
GAAP earnings were $4.62 per share, up 11% year over year.
The company’s total ending annualized recurring revenue (ARR) reached $27.50 billion, increasing 11.2% year over year. AI-first ending ARR exceeded $650 million, growing more than 150% year over year.
Subscription revenue totaled $6.58 billion, up 13.7% year over year and accounting for 97.4% of total revenue. Product revenue declined 1.5% to $67 million, while services and other revenue fell 14% to $111 million.
Adobe’s AI Adoption Gains Momentum
Adobe’s AI business continued to expand during the quarter. Firefly ending ARR across the Firefly App and Firefly credit packs increased 40% sequentially, while AI-first ARR more than doubled year over year.
The company is also extending Acrobat capabilities to platforms such as ChatGPT, Chrome, Claude, Microsoft Edge and WhatsApp.
Higher Costs Weigh on Adobe’s Margins
Adobe’s strong revenue growth was accompanied by rising operating expenses. GAAP gross margin declined to 88.7% from 89.3% in the year-ago quarter. Operating expenses increased 14.8% year over year to $3.64 billion.
Adobe Reports Record Q3 Cash Flow
Cash flow from operations reached a third-quarter record of $2.52 billion, up 14.8% year over year. Adobe ended the quarter with $5.64 billion in cash and short-term investments.
Remaining performance obligations totaled $22.16 billion, up 8% year over year, while current RPO increased 9%.
Adobe repurchased approximately 9.5 million shares during the quarter and ended the period with about $24.55 billion remaining under its April 2026 repurchase authorization.
Adobe Raises Fiscal 2026 Outlook
Adobe expects fourth-quarter fiscal 2026 revenue of $6.80-$6.85 billion, with non-GAAP earnings projected at $6.30-$6.35 per share. The company expects a non-GAAP operating margin of approximately 44%.
Business Professionals & Consumers subscription revenue is forecast at $1.93-$1.95 billion, while Creative & Marketing Professionals subscription revenue is expected to reach $4.665-$4.695 billion.
For fiscal 2026, Adobe raised its revenue target to $26.576-$26.626 billion and its non-GAAP earnings outlook to $24.45-$24.50 per share. The company expects a non-GAAP operating margin of approximately 45%.
Ending ARR growth is projected at 10.2% year over year, based on the fiscal 2026 beginning book of business of $25.66 billion.
However, the fourth-quarter revenue outlook fell slightly short of Wall Street’s $6.85 billion midpoint expectation, per tikr.com. The softer guidance has raised questions about Adobe’s ability to maintain its growth momentum as competition intensifies.
Bottom Line
Adobe’s Q3 results highlight resilient subscription growth, accelerating AI adoption and strong cash generation. However, rising costs and intensifying competition in AI-powered design tools can pose threats. Hence, investors can play the stock with ETFs. The ETF approach minimizes the company-specific concentration risks.
Adobe-heavy ETFs include Fidelity Metaverse ETF (FMET - Free Report) , Invesco Next Gen Media and Gaming ETF (GGME - Free Report) , ARIA Opportunities ETF (ARIA - Free Report) and Motley Fool Value Factor ETF (MFVL - Free Report) . Adobe accounts for about 4% of each fund.