Adobe Inc. (אדובי)
Analytical review · Quarter ended August 28, 2026 (Q3 of fiscal year 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. Adobe's Form 10-Q for the quarter ended August 28, 2026, filed September 22, 2026; the Form 10-Qs for Q1 and Q2; the Form 10-K for fiscal 2025; the quarterly earnings releases from December 2025 to September 2026; the Q3 earnings-call prepared remarks; and Form 8-K filings on management changes and the annual meeting results. Adobe's fiscal year ends in late November. Market data: closing price on October 6, 2026, and the Bank of Israel representative USD rate on the same day.
Company Profile
Adobe Inc. develops software for content creation, document work and digital marketing. Its best-known products are Photoshop, Illustrator, Premiere and Lightroom (in the Creative Cloud bundle), Acrobat and the PDF format, Adobe Express, the Firefly AI models, and the enterprise marketing systems Adobe Experience Manager and Adobe Experience Platform. The company is headquartered in San Jose, California, and had 31,360 employees at the end of November 2025.
Revenue for the 12 months ended August 2026 was $26.0 billion, 97% of it from subscriptions. The company splits customers into two groups: Creative & Marketing Professionals (about 71% of subscription revenue in the quarter) and Business Professionals & Consumers (about 29%, mainly Acrobat). Since the start of fiscal 2026 the company reports a single segment.
Three management changes took place this year. In March 2026 Shantanu Narayen, CEO for 18 years, announced his intention to step down from the role. In June the CFO left, and an interim CFO has served since. In September Anil Chakravarthy, who led the enterprise marketing business, was appointed CEO effective December 1, 2026, with Narayen becoming executive chair. In the same month the president of the creativity and productivity business announced his departure. Adobe has no controlling shareholder and one class of shares.
Financial Performance
The quarter: double-digit revenue, slower operating profit
In the June–August 2026 quarter revenue rose 12.9% to $6.76 billion. Business Professionals & Consumers subscription revenue rose 15.6%, and Creative & Marketing Professionals 13.0%. Operating income rose 8.3%, and net income only 3.1%: the effective tax rate rose from 19% to 22.5%. EPS rose 10.5% because the share count fell 6.7%.
What needs to be separated out: On April 28, 2026 Adobe completed the acquisition of Semrush for $1.87 billion. According to the company, Semrush's annualized recurring revenue at the acquisition date was about $480 million, and in Q2 it contributed about $40 million of revenue in one month. The company did not disclose the Q3 contribution. Based on the ARR, a full quarter is worth roughly 2 points of growth. Currency added about 0.7 point. By our rough estimate, organic constant-currency growth was about 10% in Q3, versus about 12% in Q1 and Q2. This is our estimate, not a reported figure.
| $ millions | Q3 FY25 | Q4 FY25 | Q1 FY26 | Q2 FY26 | Q3 FY26 |
|---|---|---|---|---|---|
| Revenue | 5,988 | 6,194 | 6,398 | 6,618 | 6,760 |
| Creative & Marketing (subscription) | 4,117 | 4,245 | 4,389 | 4,537 | 4,651 |
| Business & Consumers (subscription) | 1,648 | 1,718 | 1,782 | 1,853 | 1,905 |
| Gross margin | 89.3% | 89.5% | 89.6% | 89.2% | 88.7% |
| Operating margin | 36.3% | 36.5% | 37.8% | 33.8% | 34.8% |
| Operating margin, company definition (non-GAAP) | 46.3% | 45.6% | 47.4% | 44.5% | 44.0% |
| Net income | 1,772 | 1,856 | 1,889 | 1,712 | 1,827 |
| Diluted EPS ($) | 4.18 | 4.45 | 4.60 | 4.25 | 4.62 |
Q2 included a $70 million goodwill impairment and a $30 million legal accrual; Q1 included a $62 million accrual related to the settlement with the U.S. Department of Justice over subscription cancellation practices.
Where the costs went
Cost of subscription revenue rose 24% in the quarter. According to the filing, 22 points of that came from hosting and data centers, a line that also includes the cost of running AI models. R&D rose 18%, mainly compensation and partly infrastructure for model training. Sales and marketing rose 11%, partly due to advertising. As a result, operating income under the company's definition (non-GAAP) rose 7.2%, about half the revenue growth rate.
The multi-year context
In fiscal 2021–2025 revenue grew 10.8% a year on average, and EPS 13.6% a year. The diluted share count has fallen 17.8% since fiscal 2021. Stock-based compensation rose from 6.8% of revenue in 2021 to 8.0% over the last 12 months.
| Fiscal year, $ billions | 2021 | 2022 | 2023 | 2024 | 2025 | 12 months to 8.2026 |
|---|---|---|---|---|---|---|
| Revenue | 15.8 | 17.6 | 19.4 | 21.5 | 23.8 | 26.0 |
| Net income | 4.8 | 4.8 | 5.4 | 5.6* | 7.1 | 7.3 |
| Free cash flow | 6.9 | 7.4 | 6.9 | 7.9* | 9.9 | 10.6 |
| Stock-based compensation | 1.1 | 1.4 | 1.7 | 1.8 | 1.9 | 2.1 |
| Share repurchases | 4.0 | 6.6 | 4.4 | 9.5 | 11.3 | 9.3 |
* Fiscal 2024 includes a $1 billion termination fee for the cancelled Figma transaction.
Balance Sheet & Capital
On August 28, 2026 Adobe held $5.6 billion in cash and short-term investments. Debt: senior notes of $6.15 billion (par), of which $1.35 billion mature in February and April 2027, plus $250 million of commercial paper. According to the company, it intends to refinance the current portion. The notes carry no financial covenants, and a $1.5 billion credit facility is undrawn. Operating income over the last 12 months was roughly 36 times interest expense.
Net cash turned into net debt: at the end of November 2025 the company had net cash of about $0.4 billion. At the end of August 2026 it had net debt of about $0.7 billion. Over the nine months free cash flow was $7.5 billion, while $6.8 billion went to buybacks and $1.6 billion net to Semrush.
Buybacks: over the nine months 26.1 million shares were repurchased for $6.82 billion, about $261 per share on average. In Q3 the average price was about $235. In April 2026 a new $25 billion authorization through 2030 was approved; $24.55 billion remains. The company pays no dividend. About one-fifth of the buybacks over the last 12 months equals stock-based compensation in the same period.
- Equity: $11.8 billion, after cumulative buybacks costing $55.6 billion. Goodwill alone ($14.0 billion) exceeds equity.
- Deferred revenue: $7.2 billion — subscription payments received in advance. Because of it, working capital is negative ($2.7 billion) and the current ratio is 0.77.
- Remaining performance obligations (RPO): $22.16 billion, +8% year over year, versus subscription revenue growth of 13.7%.
Segments
From the start of fiscal 2026 the three former segments (Digital Media, Digital Experience, Publishing & Advertising) were combined into one reportable segment. Separate profitability by business is therefore no longer available. What the company does publish: subscription revenue by two customer groups, and total annualized recurring revenue (ARR).
ARR is the metric the company defines as its key performance measure, and half of management's 2026 performance-share awards depend on its growth. The company revalues it once a year at beginning-of-year exchange rates. Net new ARR (end of quarter minus start), per company data at constant rates:
| $ billions | Q2 FY25 | Q3 FY25 | Q4 FY25 | Q1 FY26 | Q2 FY26 | Q3 FY26 |
|---|---|---|---|---|---|---|
| Ending ARR | 24.08 | 24.74 | 25.66 | 26.06 | 27.10 | 27.50 |
| Net addition in quarter | 0.58 | 0.66 | 0.92 | 0.40 | 1.04** | 0.40 |
** Includes about $0.48 billion from the Semrush acquisition. Without it, about $0.56 billion. The company has not disclosed Semrush ARR after Q2.
The annual target: in December 2025 the company set a 10.2% ARR growth target for fiscal 2026, and the release stated the target did not include Semrush. From June 2026 the targets include Semrush, and the ARR target remained 10.2%. The arithmetic: if Semrush's contribution stayed at about $0.48 billion, the target implies organic growth of about 8.3%. The company did not address this explicitly.
Where growth comes from, per the company: Business Professionals & Consumers — Acrobat, in all three quarters. Creative & Marketing — in Q1 and Q2 the drivers cited were Creative Cloud Pro and Adobe Experience Platform; in Q3 "Creative Cloud flagship apps" and Adobe Experience Manager, "including the contribution from Semrush". In Q1 the filing noted a decrease from Adobe Stock (the stock-image library). On the earnings call the company said ARR for Adobe Experience Manager, GenStudio and Adobe Experience Platform each grew more than 20%.
Competitive Position
The differentiation the company presents rests on professional tools that became industry standards — Photoshop, Illustrator, Premiere and the PDF format — and on AI models that, according to the company, were trained only on licensed content ("commercially safe"). Alongside its own models, Adobe also integrates third-party models inside its apps. Gross margin is about 89%.
Where the filings show pressure: in its annual report the company describes its markets as having "limited barriers to entry", and lists AI-first creative tools, web- and mobile-first design platforms, and social platforms with built-in editing among its competitors. In Q1 Adobe Stock revenue declined. In Q3, per the earnings-call remarks, Creative Cloud strength came from Teams and Enterprise offerings. Individual subscribers were not mentioned.
Expanding the user base: according to the company, more than one billion monthly active users use its products (+20% a year), over 900 million of them on Acrobat and Express. The interim CFO described a freemium strategy. ARR from AI-first products exceeded $650 million, about 2.4% of the total. This review does not include competitor data from primary sources.
How to Think About This Company
At Adobe, the central question is not today's profitability but tomorrow's organic growth rate. The business generates about $10.6 billion of free cash flow a year, and 97% of revenue comes from subscriptions. On October 6, 2026 the market cap was $92.7 billion and the P/E 13.3 — below the level at the end of each of fiscal years 2021–2025. Someone looking at cash flow and someone looking at the organic ARR trend will see two different pictures of the same business.
Reported versus organic. Reported revenue growth rose from 12.0% to 12.9% over the year. But Q3 included a full quarter of Semrush, and currency also contributed. The company's Q4 guidance ($6.80–6.85 billion) reflects growth of 9.8%–10.6% — including Semrush, against a prior-year quarter without it. So before any comparison, what was acquired needs to be separated from what grew.
ARR leads revenue. Subscription revenue is recognized over the subscription term, so a change in the pace of net new recurring revenue shows up in revenue with a lag. In Q3 the net addition was $0.40 billion, versus $0.66 billion a year earlier. Remaining performance obligations grew 8%, versus 13.7% for subscription revenue. Single-quarter data is noisy: seasonality, enterprise renewals and currency revaluation all matter. The trend will be clearer in the year-end figures.
AI as a running cost. The cost of running the models is recorded in cost of revenue and grows with usage. Cost of subscription rose 24%, and gross margin fell from 89.3% to 88.7%. According to the company, AI credit consumption is accelerating quarter over quarter. The economic question is whether revenue from that usage grows faster than its cost. In Q3, operating income under the company's definition grew at about half the revenue growth rate.
Free as a strategy. More than a billion monthly users, and users of the free versions of the creative tools grew more than 70%. Management describes a move toward free versions with paid upgrades. In such a model, user growth does not translate into revenue immediately, and the metric that links the two — the conversion rate to paid — is not published.
Where EPS growth comes from. In Q3 net income rose 3.1% and EPS 10.5%. The difference is the buyback. Adobe allocates about 88% of free cash flow to buybacks, and about one-fifth of that equals stock-based compensation. Over the nine months shares were bought at an average of about $261, and net cash turned into a small net debt position.
Less transparency in a transition year. This year the segments were merged into one, Semrush ARR was not disclosed after Q2, and next month a new CEO takes over with an interim CFO in place. At the annual meeting the say-on-pay vote passed with 50.7% of votes cast. The upcoming annual report will be the first under the new management.
Historical multiple versus today's multiple. Adobe's P/E at the end of fiscal years 2021–2025 ranged from 18.8 to 60.8. On October 6, 2026 it was about 13.3. Free cash flow yield on market cap was 11.4%, and after deducting stock-based compensation — 9.2%. These figures describe the starting point; they do not determine the direction.
The framework is meant to organize the questions. It does not decide and does not take part in the decision — the decision belongs to the reader.
This framework is intended to structure analysis, not to produce an investment conclusion.
Risks & Monitoring
Risks that emerge from the filings
- Competition from AI tools: the company describes markets with limited barriers to entry and new AI-first competitors. Adobe Stock revenue declined in Q1.
- Cost of running models: hosting and data-center costs in cost of revenue are rising faster than revenue.
- Management transition: new CEO from December 1, 2026, an interim CFO, and the departure of the president of the creativity and productivity business.
- Consumer regulation: in March 2026 the U.S. Department of Justice case over subscription-term disclosure and cancellation was settled. The operational terms of the settlement are not detailed in the filings.
- Acquisitions: Semrush ($1.87 billion, 67% of the price recorded as goodwill) and Topaz Labs (about $340 million; according to the company, closing is planned for Q4). In Q2 a $70 million goodwill impairment was recorded in another unit.
- Tax: the effective tax rate rose from 19% to 22.5%. On the other hand, according to the company, the 2025 U.S. tax law reduces cash taxes.
- Litigation: an appeal of the dismissal of a shareholder class action (related to Figma), and stayed derivative suits.
Items to monitor in the Q4 report (December 2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | Fiscal year-end ARR growth versus the target | 11.2% in Q3; annual target 10.2% |
| 2 | Fiscal 2027 ARR target, and whether it is also published excluding acquisitions | — |
| 3 | Operating margin under the company's definition | 44.0% |
| 4 | Cost of subscription versus subscription revenue | +24% vs +13.7% |
| 5 | Business Professionals & Consumers revenue (Acrobat) | +15.6% |
| 6 | Remaining performance obligations | $22.16 billion, +8% |
| 7 | Buybacks, net debt and refinancing of the 2027 notes | 88% of FCF; net debt $0.7 billion |
| 8 | Strategy statement from the new CEO; permanent CFO appointment | — |
Scenario Framework
The scenarios below are descriptive, not predictive. They contain no prices, no probabilities, and do not rank the outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so they can be checked against upcoming reports.
Scenarios are descriptive, not predictive.
- If net new recurring revenue returns to the prior-year level even without acquisitions
- If growth in free users translates into paid subscriptions
- If the cost of running the models grows more slowly than the revenue from them, and margins stabilize
- If the new management publishes detailed targets, including growth excluding acquisitions
- If organic growth moves around the fiscal 2026 level, with a contribution from small acquisitions
- If Acrobat continues to lead growth, and Creative Cloud grows more slowly
- If margins stay around the Q3 level
- If most cash flow continues to go to buybacks
- If net new recurring revenue keeps declining, and revenue growth converges toward it
- If AI-based creative tools replace more products, as happened with Adobe Stock
- If the cost of running the models keeps growing faster than revenue
- If the management transition comes with metric changes and less disclosure
Analytical Lens
The following six questions are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company on the same six dimensions as every other company.
Key Observations
1. In the June–August 2026 quarter Adobe reported revenue of $6.76 billion (+12.9%) and EPS of $4.62 (+10.5%). Net income rose 3.1%, and the share count fell 6.7%.
2. Annualized recurring revenue was $27.50 billion (+11.2%), including a contribution from Semrush, acquired in April. The net addition in the quarter was $0.40 billion, versus $0.66 billion a year earlier. The 10.2% annual target has not changed since the company added Semrush to it.
3. Cost of subscription revenue rose 24%, mainly due to hosting and data centers, which include the cost of running AI models. Operating income under the company's definition rose 7.2%.
4. Over the last 12 months free cash flow was $10.6 billion and buybacks $9.3 billion. On December 1, 2026 Anil Chakravarthy will become CEO, and Shantanu Narayen will serve as executive chair.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held an investment advisory license from 2008 to 2023. As of the publication date of this document, the company does not hold an investment advisory, investment marketing, or portfolio management license.
This document is intended for research and professional education purposes only. Nothing herein constitutes a recommendation to buy, sell, hold, or take any action in securities. It is not a substitute for advice that takes into account each person's individual data and needs. Any decision is the sole responsibility of the investor.
Past performance is not indicative of future results. Data was drawn from official sources: the Form 10-Q for the quarter ended August 28, 2026 (filed September 22, 2026), the Form 10-Qs for Q1 and Q2 of fiscal 2026, the Form 10-K for fiscal 2025 (January 15, 2026), the quarterly earnings releases, the Q3 earnings-call prepared remarks, and the company's Form 8-K filings with the U.S. Securities and Exchange Commission. Historical multiples: stockanalysis.com. Organic growth estimates in this review are our own calculation, not reported figures. Filing updates published after this date are not included.
Qualified-Client Review — Family Office
The full analytical review of Adobe (ADBE) for the quarter ended August 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company", a structured scenario framework, and a 6-dimension Analytical Lens.
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