ADBE's AI-Focus Aids Subscription Revenues: Is the Growth Sustainable?

Adobe’s ADBE subscription revenues increased 11.5% year over year to $5.64 billion and accounted for 96% of second-quarter fiscal 2025 revenues. Subscription revenues from business professionals and consumers group grew 15% year over year to $1.6 billion. Subscription revenues from the creative and marketing professionals group increased 10% year over year on a reported basis and 11% in constant currency to $4.02 billion.

Adobe’s investments in conversational experiences in Acrobat and Generative AI models in Express is notewrithy. The combination of these two products is helping business professionals and consumers gain insight and create presentations much faster. The company is witnessing steady growth across the family of Acrobat and Express products, with combined monthly active user growth accelerating to more than 25% year over year and crossing 700 million monthly active users at the end of the fiscal second quarter.

Acrobat users are increasingly relying on Acrobat AI Assistant to consume content at a faster rate and are using Express to create richer PDFs, customized presentations and animated designs. ADBE is seeing increasing adoption of Express capabilities within Acrobat, driven by growing demand for creative functionality. Adobe is gaining traction among individuals, small and medium businesses and enterprises thanks to Acrobat AI Assistant as well as Express premium plans. In the fiscal second quarter, Express alone added 8,000 new customers, including enterprises like Microsoft MSFT, ServiceNow, Workday and Intuit.

The company’s latest Acrobat Studio, which unites Adobe Acrobat, Adobe Express and AI agents, is expected to help Adobe expand its footprint among business and creative professionals, as well as students. Acrobat Studio converts PDFs into a conversational knowledge hub that users, with the help of a customizable AI assistant, can delve into to gain insights, answers and recommendations. Adobe Express creation tools and templates, as well as Firefly-powered image and video generation tools, can then be used to create content from the gathered information.

Adobe expects Digital Experience subscription revenues between $1.35 billion and $1.36 billion for the third quarter of fiscal 2025. The Zacks Consensus Estimate for third-quarter fiscal 2025 Digital Experience subscription revenues is pegged at $1.36 billion, indicating 10.3% year-over-year growth. The consensus mark for Digital Media subscription is pegged at $4.27 billion, suggesting 9% year-over-year growth.

Adobe Faces Tough Competition in the AI Domain

ADBE’s AI business is minuscule compared with Microsoft and Alphabet GOOGL. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in the AI Copilot business. AI assistants, including Microsoft 365 Copilot for commercial customers and the consumer Copilot in Windows, reached 100 million monthly active users in the fourth quarter of fiscal 2025.

Alphabet’s focus on leveraging AI to drive growth is a key catalyst. AI is infused heavily across its offerings, including Search and Google Cloud. Alphabet is leveraging AI to boost search dominance with the launch of Gemini 2.5. Search revenues are driven by improving engagement with features like AI Overview, which now has 2 billion users per month and is available in more than 40 languages across 200 countries.

ADBE’s Share Price Performance, Valuation & Estimates

Adobe shares have dropped 19.9% year to date, underperforming the broader Zacks Computer and Technology sector’s return of 12.9%.

Adobe Stock’s Performance

The ADBE stock is trading at a premium, as suggested by a Value Score of C.

In terms of trailing price/book, Adobe shares are trading at a higher multiple of 13.22X compared with the broader sector’s 10.27X.

ADBE Valuation

The Zacks Consensus Estimate for third-quarter fiscal 2025 earnings is pegged at $5.17 per share, unchanged over the past 30 days, suggesting 11.2% year-over-year growth. 
 

Adobe Inc. Price and Consensus

Adobe Inc. price-consensus-chart | Adobe Inc. Quote

Adobe currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research