Adobe (NASDAQ: $ADBE), a leader in digital marketing, and creative software, released its third quarter fiscal 2025 results on Wednesday, March 12, 2025, after markets closed. Despite topping estimates, the stock took a dive. Here is an in-depth look at the Q1 results.
Adobe Beats Estimates In Q1 Results
For the first quarter, Adobe reported record revenue of $5.71 billion, a 10.2% YoY increase, and above estimates of $5.66 billion. Adjusted EPS for Q1 came in at $5.08, compared to $4.48 last year, and above estimates of $4.97.
Other Q1 Highlights
Adobe reported a non-GAAP operating income of $2.72 billion, and non-GAAP net income of $2.22 billion in Q1. Cash flow from operations came in at $2.48 billion, while remaining performance obligations (RPO) at the end of the quarter were $19.69 billion.
Segment Performance
The Digital Media segment reported $4.23 billion in revenue, an 12% YoY increase on an FX-neutral basis, with Annualized Recurring Revenue (ARR) of $17.63 billion at the end of the quarter; a 12.6% YoY increase.
The Digital Experience segment reported revenue of $1.41 billion, a 10% YoY increase, and a subscription revenue of $1.3 billion, an 11% YoY increase on an FX-neutral basis.
Second Quarter and Full Year Forecasts
For the second quarter of fiscal 2025, Adobe expects revenue of $5.77B to $5.82B, missing estimates of $5.8 billion at the midpoint. It expects Digital Media segment revenue of $4.27B to $4.30B, while the Digital Experience segment revenue is expected to be $1.43B to $1.45B. Adobe expects Digital Experience subscription revenue of $1.315B to $1.325B, while adjusted EPS is forecast to be $4.95 to $5.00. It expects a non-GAAP operating margin of 45%
Full-year revenue is forecast at $23.30B to $23.55B, while the Digital Media segment revenue is forecast at $17.25B to $17.40B for the full year. Adobe expects Digital Media ending ARR to increase 11% YoY, while the Digital Experience segment is expected to deliver revenue of $5.80B to $5.90B for the full year. It expects Digital Experience subscription revenue of $5.375B to $5.425B, while adjusted EPS is forecast at $20.20 to $20.50. It expects a full-year non-GAAP operating margin of 46%.
Supplemental Disclosure
To provide further insight to investors, Adobe will disclose subscription revenue by “Business Professionals and Consumers” and “Creative and Marketing Professionals.” In Q1, Business Professionals and Consumers Group subscription revenue increased 15% YoY to $1.53 billion, while Creative and Marketing Professionals Group subscription revenue increased 10% YoY to $3.92 billion.
Adobe Market Performance
Following the Q1 earnings beat, Adobe shares tanked 6.92% in premarket trading to $408.24 on March 13, 2025 as of 9:00:36 AM EDT. In the past six months, ADBE shares have sunk 25.22%, while in the past 12 months, the stock is down 24.27%. Meanwhile, the stock is down 1.37% YTD.
Analysts give ADBE shares a moderate buy rating, with an average price target of $543.95, which is a 24.02% upside based on Wednesday’s closing price of $438.60. The analysts forecast a wide range of price targets, with a high of $703.00, and a low of $390.00.
Is ADBE A Buy Following The Mixed Q1 Results?
Adobe is a global leader in several software categories, and its growth over the years has been largely due to its ability to innovate. The company is holding on to that legacy, and is currently at the helm of AI innovation.
One of the most recent examples of this success is the adoption of Adobe Firefly generative AI by Estee Lauder Companies (EL) for their digital marketing campaigns. While Adobe may suffer short-term setbacks in the medium term, the company’s revenue has consistently grown, and in Q1 it reported record quarterly revenue. Consequently, adding ADBE to your portfolio could potentially lead to great long-term growth as the AI industry blooms.
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