Adobe (NASDAQ: ADBE) posted record revenue in its fiscal third quarter of 2026, with sales climbing 13% year over year to $6.76 billion for the period ended August 28.
Non-GAAP earnings per share rose 15% year over year to $6.13, while GAAP earnings per share grew 11% to $4.62, both reflecting broad-based momentum across the business.
Cash flow from operations climbed approximately 15% to $2.52 billion, marking a third-quarter record and underlining the strength of Adobe’s subscription model.
The company reported that it now surpasses 1 billion monthly active users across its creativity and productivity products, a milestone that signals the scale of its platform.
Annualized recurring revenue from Adobe’s artificial intelligence-first products grew more than 150% year over year, though the company’s total ARR figure tells a more nuanced story.
Total annualized recurring revenue stood at $27.50 billion at the close of the fiscal third quarter, up from $27.10 billion at the end of the second quarter and $25.66 billion at the start of the fiscal year.
Subscriptions accounted for approximately 97% of fiscal Q3 revenue, meaning that as the subscription base expands, essentially the entire company’s revenue base moves in tandem.
Management raised its full-year fiscal 2026 revenue outlook to between $26.58 billion and $26.63 billion, with adjusted earnings per share guidance set at $24.45 to $24.50, both ranges above targets set in June.
The updated guidance implies ending ARR growth of approximately 10.2% year over year, which would place the subscription book of business at around $28.3 billion when the fiscal year closes in late November.
At that trajectory, total ARR is projected to cross the $30 billion threshold sometime in the second half of next fiscal year, a milestone that could reframe how investors assess the stock’s current valuation.
Interim chief financial officer Steve Day stated in the earnings release that Adobe is “expanding our user base through a freemium strategy and deepening engagement with agentic experiences to deliver long-term durable growth.”
Growth is moderating, however, with total ARR expanding 11.5% in fiscal 2025, and this year’s 10.2% target partly dependent on the roughly $480 million in ARR contributed by the Semrush acquisition.
Stripping out that acquisition benefit places organic ARR growth closer to 8%, a figure that may be weighing on investor sentiment and contributing to the stock’s discount to its 52-week high.
Adobe shares were trading at approximately $252, roughly a third below their 52-week high, which at the midpoint of full-year adjusted earnings guidance equates to approximately 10 times current-year earnings.
Analyst projections for fiscal 2027 place the forward price-to-earnings multiple closer to 9 times, a valuation that the company itself appears to view as an opportunity given its capital return activity.
Adobe repurchased approximately 9.5 million shares during the quarter, and its diluted share count is now down roughly 7% from a year ago, making buybacks at a single-digit forward multiple particularly capital-efficient.
The market’s skepticism centers largely on the competitive threat from generative artificial intelligence and whether Adobe’s creative tools can maintain their pricing power as AI-generated content tools proliferate.
An upcoming leadership transition adds a further layer of uncertainty, with Adobe president Anil Chakravarthy set to assume the CEO role on December 1.
Despite those headwinds, a business generating more than $2 billion of net new recurring revenue annually, converting that into record operating cash flow, and actively shrinking its share count presents a compelling case at current prices.
