Morningstar

Adobe Earnings: Building on Recent Momentum With Another Good Quarter

We think Adobe stock is significantly undervalued.

The Adobe Systems Inc. logo and signage is displayed outside its company headquarters.
Aaron M. Sprecher via AP
Securities in This Article
Adobe Inc
(ADBE)

Key Morningstar Metrics for Adobe

What We Thought of Adobe’s Earnings

Adobe’s ADBE fourth-quarter revenue grew by 10.5% year over year, reaching $6.19 billion, while non-GAAP operating margin was 45.6%, both of which topped guidance. The initial 2026 outlook was slightly ahead of FactSet consensus on revenue but slightly light on profitability.

Why it matters: This marks the sixth consecutive quarter of revenue upside relative to our expectations. We continue to see positive signs of strength simmering below the surface for artificial intelligence adoption and new user growth.

  • Both annual recurring revenue and remaining performance obligations outgrew revenue, which we view as a positive indicator for the next 12 months.
  • On a year-over-year basis, ARR grew 11.5%, RPO expanded 12.8% year over year, and total monthly active users increased 15%, while revenue was up 10.5%. Generative credits were up three times sequentially.

The bottom line: We maintain our fair value estimate of $560 per share for wide-moat Adobe and view shares as attractively valued. While we made minor adjustments to reflect near-term guidance, our long-term assumptions remain steady.

  • The two key controversies around Adobe center around emerging competition and fears for seat compression pressures arising from AI. To support the current stock price, revenue growth would have to be 400 basis points lower throughout our entire forecast, which seems highly unlikely.
  • We continue to see a path for annual margin expansion coupled with solid but decelerating growth over the next five years, even if that can be uneven at times.

Coming up: Fiscal 2026 guidance was mixed relative to our expectations, with revenue slightly ahead and non-GAAP operating margin slightly light, while the first-quarter outlook was ahead on both measures.

  • The one obvious blemish was that ARR grew nicely in the quarter and revenue guidance skewed positive, but the ARR outlook for fiscal 2026 calls for deceleration to 10.2% growth. We struggle to reconcile otherwise positive data points here.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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