Adobe Q1 Earnings Loom: Hold or Fold the Stock Ahead of Results?

Adobe ADBE is set to report first-quarter fiscal 2026 results on March 12.

For first-quarter fiscal 2026, Adobe projects total revenues between $6.25 billion and $6.30 billion. The company expects non-GAAP earnings between $5.85 and $5.90 per share.

The Zacks Consensus Estimate for revenues is pegged at $6.28 billion, suggesting growth of 9.92% from the year-ago quarter’s reported figure. The consensus mark for earnings has been unchanged at $5.88 per share over the past 30 days, indicating 15.75% growth from the figure reported in the year-ago quarter.

ADBE’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average earnings surprise being 2.25%.

Consensus Earnings Trend

Let us see how things have shaped up for ADBE stock prior to this announcement.

Factors to Note Prior to ADBE’s Q1 Earnings

Adobe faces stiff competition in the AI and Generative AI (GenAI) space from the likes of Microsoft MSFT-backed OpenAI, Alphabet GOOGL, Salesforce CRM, Midjourney and Canva. This, along with a challenging macroeconomic environment, has been a headwind for Adobe’s prospects.

However, Adobe’s prospects are expected to have benefited from the continued adoption of its cloud-based platform, Acrobat and Express, supported by the integration of AI-powered capabilities, such as Firefly and Acrobat AI Assistant. These tools are enabling faster content creation and document productivity, directly influencing subscription renewals and premium upgrades. 

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. This is expected to have driven top-line growth in the to-be-reported quarter.

Adobe expects Business Professionals and Consumers’ subscription revenues between $1.74 billion and $1.76 billion. Creative and Marketing Professionals subscription revenues are expected between $4.30 billion and $4.33 billion.

ADBE Shares Underperform Sector, Industry

Adobe shares have declined 34.8% in a year, underperforming the broader Zacks Computer and Technology sector’s return of 33.6% and the Zacks Computer Software industry’s appreciation of 1.6%. Adobe shares have underperformed Microsoft, Alphabet and Salesforce. Over the same time frame, Microsoft and Alphabet have returned 7.6% and 80%, while Salesforce shares have dropped 25.9%.

Adobe Stock’s Performance

The ADBE stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.

In terms of the forward 12-month price/book, Adobe’s shares are trading at 10.02X, higher than the sector’s 9.07X, Microsoft’s 7.77X, Alphabet’s 8.7X and Salesforce’s 3.15X.

Adobe Stock’s Valuation

Can a Strong Portfolio Boost ADBE’s Prospects?

Adobe is infusing AI innovations into Acrobat, including new AI chat experiences to PDFs with simple, natural-language prompts. The company is combining Acrobat and Express to transform productivity and creativity together, making it fast and easy to generate presentations and podcasts from documents in minutes with AI. The new features are available in Acrobat Studio, which includes advanced PDF tools, AI Assistant and PDF Spaces from Acrobat and Express Premium capabilities in one AI-powered home for productivity.

Adobe boasts of a rich partner base that includes the likes of Amazon Web Services, Microsoft Azure and Copilot, Google Gemini, HUMAIN, and OpenAI. ADBE’s Firefly, Express and Creative Cloud applications currently integrate models from partners, including Google, OpenAI, Black Forest Labs, Luma, Runway, Topaz Labs and Eleven Labs. Adobe is now expanding its partnership with WPP under which integrated solutions will be delivered for global brands to optimise media. These solutions, powered by AI agents, will orchestrate the planning, creation, production and activation of creative and media assets at a much faster pace.

However, Adobe’s prospects are suffering from increasing competition from AI tools offered by the likes of Canva and OpenAI. Adobe’s AI business is minuscule compared with Microsoft and Alphabet. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in the AI Copilot business. Microsoft monetizes AI through existing customer relationships, reducing customer acquisition costs while expanding revenue per user. 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. AI Overviews and AI Mode are driving overall queries and commercial queries, thereby driving monetization opportunities.

Conclusion

Adobe’s prospects benefit from strong demand for its creative products. However, Adobe is suffering from increasing competition in the GenAI space and AI-driven disruptions. A stretched valuation is concerning.

Adobe currently has a Zacks Rank #4 (Sell), suggesting that it may be wise to avoid the stock ahead of first-quarter fiscal 2026 earnings.

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

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

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