Adobe beats Q1 estimates but shares slide on weak profit outlook, CEO transition news

Adobe beats Q1 estimates but shares slide on weak profit outlook, CEO transition news Proactive uses images sourced from Shutterstock

Adobe Inc (NASDAQ:ADBE) shares fell more than 6% after the software maker reported its fiscal first quarter results, as investors reacted to the company’s weak quarterly profit outlook and a planned leadership transition despite headline beats on revenue and earnings.

The company reported revenue of $6.4 billion for the quarter ended February 27, up 12% year-over-year. Analysts had been expecting revenue of roughly $6.275 billion, implying mid-single-digit growth from the prior year.

Adobe reported earnings of $6.06 per share, ahead of analyst estimates of about $5.87 per share.

Subscription revenue, the core of Adobe’s recurring-revenue model, reached $6.17 billion, representing 13% year-over-year growth and exceeding the roughly $6.09 billion analysts had expected.

Within that, Creative & Marketing Professionals subscription revenue totaled $4.39 billion, up 12% from a year earlier, while Business Professionals & Consumers subscription revenue reached $1.78 billion, rising 16% year over year.

Total Adobe annual recurring revenue (ARR) exiting the quarter was $26.06 billion.

Remaining performance obligations, a measure of contracted future revenue, were $22.22 billion, with 67% classified as current RPO expected to be recognized within the next 12 months.

Executives highlighted artificial intelligence as an increasingly important growth driver for the company’s products.

“Adobe delivered record Q1 results with AI-first ARR more than tripling year over year and subscription revenue growing 13%,” CEO Shantanu Narayen said in a statement.

Looking ahead, Adobe said it expects second quarter revenue between $6.43 billion and $6.48 billion, compared to estimates of $6.44 billion. It projected earnings per share of $4.35 to $4.40, far below estimates of $5.67.

The company said its outlook reflects expectations for current macroeconomic conditions and does not include contributions from its pending acquisition of Semrush Holdings, which remains subject to regulatory approvals and other customary closing conditions.

Adobe also reaffirmed its previously issued fiscal-year 2026 targets.

Alongside the earnings release, Adobe announced that Narayen has decided to transition from his role as CEO after a successor is appointed, ending an 18-year tenure leading the company.

Narayen will remain chair of the board. The board has appointed Frank Calderoni to lead a special committee overseeing the CEO search, which will evaluate both internal and external candidates.

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