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Adobe Inc. - Common Stock
Our verdict on Adobe Inc. - Common Stock isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
See the verdict — free →Does management do what it says?
Management reaffirmed the timeline for RPO recognition, with 67% of the $19.69 billion total expected to be recognized as revenue within the next 12 months. (2 met across 2 tracked commitments)
“As of May 30, 2025, remaining performance obligations were approximately $19.69 billion... Approximately 67% of the remaining performance obligations... are expected to be recognized over the next 12 months with the remainder recognized thereafter.”
The company confirmed the execution of these agreements during the second quarter of fiscal 2025, which are primarily related to network infrastructure and AI inferencing capacity. (2 met across 2 tracked commitments)
“Subsequent to February 28, 2025, we executed agreements associated with certain of our long-term supplier commitments that increased our minimum purchase obligations by approximately $1.3 billion through December 2029.”
Management successfully transitioned to a single reportable segment in Q1 2026, reflecting the shift to unified selling motions and integrated product innovation as planned. (1 met across 1 tracked commitment)
“In the first quarter of fiscal 2026, we combined our former segments—Digital Media, Digital Experience and Publishing and Advertising—into a single operating and reportable segment due to changes in how management evaluates results and allocates resources, reflecting the Company’s shift to unified selling motions and integrated product innovation.”
The company reaffirmed its plan to adopt the updated segment reporting standard for annual periods beginning in fiscal 2025. (1 in progress across 1 tracked commitment)
“We will adopt the updated standard for annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026 on a retrospective basis.”
Management is actively executing on both pillars of this commitment, having spent $2.48 billion on stock repurchases this quarter and entering a definitive agreement for a $1.9 billion acquisition. (1 in progress across 1 tracked commitment)
“Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies, products or technologies that are complementary to our business.”
See the full cited Management analysis of Adobe Inc. - Common Stock
How durable is the business?
Adobe is aggressively expanding its moat through generative AI, specifically embedding Firefly and AI Assistants across its product portfolio to drive differentiation. (3 expanding)
“For creators and creative professionals, we offer an end-to-end, ideation-to creation platform powered by our commercially safe Adobe Firefly models... which offers customers brand safety, compliance, intellectual property protection, and reliability.”
Subscription revenue remains the dominant engine, increasing its share of total revenue to 96% and growing 11% year-over-year, driven by Creative Cloud and Acrobat strength. (4 expanding across 1 engine)
“Subscription $ 6,198 ... Percentage of total revenue 97 % ... % Change 13 %”
EMEA revenue growth remains robust at 13% year-over-year, slightly increasing its contribution to the total revenue mix. (3 expanding, 2 contracting across 2 engines)
“Product 90 ... Percentage of total revenue 1 % ... % Change (5)%”
Services revenue saw a double-digit decline, reflecting a shift away from consulting and training toward automated, AI-driven self-service features. (1 contracting, 1 expanding)
“Adobe Experience Platform is a customer data platform that serves as a foundation in enterprises... bridging the gap between content creation and marketing execution, enabling seamless collaboration and efficiency across the entire content lifecycle”
Switching costs are being reinforced by 'content supply chain' solutions and AI-powered workflows that integrate multiple Adobe products, making the platform more mission-critical. (2 expanding, 2 contracting, 1 shifted)
“Adobe’s mission is to empower everyone to create. We build innovative platforms and tools that unleash creativity, productivity and personalized customer experiences... In the first quarter of fiscal 2026, we combined our former segments—Digital Media, Digital Experience and Publishing and Advertising—into a single operating and reportable segment”
See the full cited Business Model analysis of Adobe Inc. - Common Stock
Where does growth come from?
Digital Media ARR grew 6% in the first half of fiscal 2024, reaching $16.25 billion, driven by strong net new user growth in both Creative and Document Cloud. (3 steady, 1 accelerating across 4 signals, 1 leading indicator)
“For creators and creative professionals, we offer an end-to-end, ideation-to-creation platform powered by our commercially safe Adobe Firefly models... Acrobat AI Assistant provides users with conversational experiences to quickly and accurately derive insights.”
Adobe's Annualized Recurring Revenue (ARR)—a key measure of the predictable yearly value of its subscriptions—grew by nearly 11%, showing steady expansion in its core user base. — Total Adobe ARR: 10.9% YoY
“Total Adobe ARR grew to $26.06 billion at the end of the first quarter of fiscal 2026, representing 10.9% year-over-year growth.”
Adobe is facing increased costs for third-party cloud hosting and data centers, specifically to support the high computing power required for AI features. — Hosting and Data Center Costs: 14% YoY
“Cost of subscription revenue consists primarily of third-party hosting services and data center costs, including expenses related to operating our network infrastructure and AI inferencing costs... Hosting services and data center costs [increased] 14%.”
Adobe is facing significant legal and regulatory pressure regarding its subscription cancellation practices, which resulted in a settlement agreement during the quarter. — Legal Settlement/Loss Contingency: 17% impact on G&A expenses
“On March 12, 2026, we reached an agreement to settle the action [with the DOJ/FTC regarding subscription cancellation practices]... we incurred a loss contingency associated with a legal settlement.”
Subscription revenue growth remains steady at 12% year-over-year, representing 96% of total revenue, up from 95% in the prior year. (1 steady across 1 signal)
“Subscription revenue $ 5,483 $ 4,916 12 % Percentage of total revenue 96 % 95 %”
See the full cited Future Growth analysis of Adobe Inc. - Common Stock
What could break the thesis?
Cost pressures are intensifying as Adobe integrates AI (Firefly) across its portfolio. Subscription cost of revenue increased 11% year-over-year, driven by higher third-party hosting and AI inferencing costs. (3 intensifying, 1 stable, 1 high-severity)
“Cost of subscription revenue increased during the three months ended February 27, 2026... primarily due to: Hosting services and data center costs [14%].”
Adobe is facing a major legal and financial threat from a Department of Justice (DOJ) lawsuit regarding its subscription cancellation practices. While a settlement has been reached, the company remains under scrutiny for how it discloses terms and allows users to cancel. [REGULATORY]
“On March 12, 2026, we reached an agreement to settle the action... The complaint alleges that Adobe failed to clearly and conspicuously disclose material terms, failed to obtain express informed consent and failed to provide a simple cancellation mechanism.”
The risk is intensifying as the U.S. District Court denied Adobe's motion to dismiss the DOJ complaint on May 2, 2025. The case has moved into the discovery phase, increasing the likelihood of significant monetary penalties or required changes to business practices. (5 intensifying)
“In addition, approximately 49% of our employees are located outside the United States. Accordingly, we are exposed to changes in laws... which likely would have a direct impact on our operating costs.”
The risk is emerging and active. Adobe entered into a definitive agreement in November 2025 to acquire Semrush for $1.9 billion in cash. The deal is expected to close in the first half of fiscal 2026, shifting the risk from 'potential' to 'imminent execution.' (1 emerging, 1 stable)
“On November 18, 2025, we entered into a definitive agreement to acquire Semrush Holdings, Inc... for approximately $1.9 billion, primarily in cash consideration.”
The risk is stable to easing as RPO grew to $19.69 billion, a 10% increase year-over-year, signaling steady demand for the company's cloud services despite macroeconomic headwinds. (2 easing, 2 stable)
“Remaining performance obligations of $22.22 billion as of February 27, 2026 increased by 13% from $19.69 billion as of February 28, 2025.”
See the full cited Risk analysis of Adobe Inc. - Common Stock
Adobe Inc. - Common Stock analysis by filing period
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