Why are shares $ADBE falling after a successful quarter? Q2FY26

Adobe yesterday after market close released its financial results for the second quarter of fiscal year 2026. At first glance it’s a triumph: the company beat analysts’ estimates, reported record revenue and even raised its full-year financial outlook. Yet the stock is down about 6% in premarket trading.

Record numbers

From a pure accounting performance perspective, Adobe had an exceptionally strong quarter.

- Total revenue reached $6.62 billion, representing a year-over-year increase of 13% (11% at constant currency).

- Net income per share (Non-GAAP EPS) climbed to $5.96 (year-over-year increase of 18%), significantly beating market expectations. GAAP EPS was $4.25, which was affected by a non-cash goodwill impairment of $70 million related to the Publishing & Advertising division.

- Operating cash flow reached $2.17 billion, enabling the company to continue aggressive share buybacks (in Q2 it repurchased 8.5 million shares).

Based on a strong first half, management raised its full-year targets for both total revenue and earnings per share.

"We are at a transformative moment for the entire industry and for our company. The convergence of AI, autonomous agents, and the explosion in content demand is creating huge opportunities," said Shantanu Narayen, CEO of Adobe, during the conference call.

The paradox of the decline

If the results are this positive and the outlook is being raised, why are the shares weakening?

1. Betting on 'Freemium' at the expense of short-term revenue

Adobe is seeing massive interest in its AI tools, such as Adobe Express, Acrobat AI Assistant, and the generative model Firefly. The total number of monthly active users (MAU) for Acrobat and Express has rocketed from more than 700 million to more than 850 million.

To convert this interest into long-term dominance, Adobe has taken a radical step: an aggressive shift to a freemium model. It wants to first lure users into trying AI features for free and then monetize them through microtransactions and premium subscriptions.

However, this move has its cost. Management openly admitted that this transformation will temporarily reduce expected ARR (annual recurring revenue) growth from individual subscribers in the second half of the year.

2. Delay in price increases for creative tools

The shift to freemium is also linked to another unpopular decision for shareholders. Adobe decided to postpone previously planned pricing and product-line optimizations for Creative Cloud, which were to take place in H2 FY2026. As a result, the market will not see a quick influx of cash from higher subscription prices among existing users in the coming months.

3. 'Inorganic' boost to the outlook thanks to Semrush

The increase in the full-year outlook was not driven purely by organic growth. Total ARR rose to $27.10 billion, but this figure includes $480 million added from the recent acquisition of analytics platform Semrush. Without this contribution, organic growth of core ARR would have slowed to roughly 10.5%.

Personnel changes in top management

There is also activity on the personnel front at Adobe right now, which doesn't add to the stock's stability:

- Departure of the chief financial officer: The previous CFO Dan Durn unexpectedly decided to leave Adobe for opportunities outside the software industry. Steve Day, who has 20 years in Adobe's finance leadership, has taken the interim CFO role, but the market always views sudden departures of finance chiefs with caution.

- Search for a new CEO: Current CEO Shantanu Narayen plans to transition to the role of chairman of the board. The company says the search for a new CEO is proceeding successfully with the goal of having a new leader in place before planning for FY2027, but for investors this means a period of transformation without a clearly defined long-term helmsman.

My view

I have Adobe shares in my portfolio. Honestly, it's probably my largest losing position so far, where I'm down about 44%. I started buying quite early, which I now see as a mistake. I didn't anticipate how negative the sentiment around SaaS companies in general would be.

As for the results, I view them quite positively. There are things that currently don't add to the company's popularity, but it all seems like short-term noise to me. Of course competition from AI is strong and there are quite a few risks overall, but I believe Adobe will likely maintain its position. I'm not buying more shares at the moment, but I'm not selling either.

How do you perceive the situation around the company? Do you have Adobe shares in your portfolio?