Here's our initial take on Adobe's (NASDAQ: ADBE) financial report.
Key Metrics
| Metric |
Q2 2024 |
Q2 2025 |
Change |
vs. Expectations |
| Revenue |
$5.31 billion |
$5.87 billion |
11% |
Beat |
| Earnings per share (adjusted) |
$4.48 |
$5.06 |
13% |
Beat |
| Operating cash flow |
$1.94 billion |
$2.19 billion |
13% |
n/a |
| Digital Media annual recurring revenue |
$16.14 billion |
$18.09 billion |
12% |
n/a |
Strong Revenue Growth, AI Progress
In its fiscal second quarter, Adobe reported 11% year-over-year revenue growth to $5.87 billion, which is the company's all-time high for a single quarter. The business generated $2.15 billion in free cash flow for the quarter, an excellent 37% free cash flow margin.
Adobe operates its business in two segments: Digital Media and Digital Experience. Digital Media includes Adobe's signature Creative Cloud subscription product (Acrobat, Photoshop, Illustrator, etc.), and Digital Experience includes the company's Experience Cloud that is designed to help businesses manage their customer experiences. Both sides of the business grew at a double-digit year-over-year pace.
Within the business, most of the statistics look impressive. Acrobat link sharing monthly active users grew more than 20% year over year, and use of generative AI features in Adobe Express tripled. Adobe's Firefly app saw traffic rise by 30% sequentially with paid subscriptions roughly doubling.
Looking ahead, Adobe is expecting third quarter revenue in the range of $5.875 billion to $5.925 billion, which would represent another new company record, and adjusted EPS in a range of $5.15 to $5.20. Both are above analyst expectations. The company's full-year forecast is also slightly ahead of the consensus.
Immediate Market Reaction
The initial market reaction to Adobe's earnings report was volatile. The stock jumped as much as 6% in the moments following the earnings release, but quickly ran out of steam and settled a bit lower. As of 4:25 p.m., Adobe's stock was down by about 1.3% in after hours trading.
It's not totally clear why the stock is under pressure. The company beat expectations on the top and bottom lines and also raised its guidance. However, the stock had already rebounded 25% from its April lows in just over two months, and while the company beat expectations, it was slight.
It's worth noting that this reaction is before management's conference call, scheduled later in the afternoon. Depending on what is said, the call could certainly move the stock in one direction or another.
What to Watch
Adobe has been investing aggressively in building out the AI capabilities of its product, so looking forward, investors will likely want to see these efforts result in a strong growth rate. However, with Adobe's stock trading for less than 20 times forward earnings estimates and revenue growth that's already in the double digits, any acceleration in growth could be a major catalyst for the stock.
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Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. The Motley Fool has a disclosure policy.
