Adobe Reports 10.6% Revenue Growth, Raises FY25 EPS Estimate

Adobe Inc. reported impressive Q2 earnings ending May, marking its 26th consecutive overperformance against analyst earnings-per-share (EPS) consensus. Despite this achievement, the market reaction was subdued, with the stock price down 7.35% over the week, trading at $387 per share against the 52-week average of $471.57. The company exceeded the EPS estimate of $4.96 with $5.06 per share, excluding one-time expenditures and costs. Total revenue for the quarter was $5.87 billion, with $5.64 billion coming from subscriptions, representing a 10.6% increase from the previous year. For the full fiscal year 2025, Adobe has raised its non-GAAP EPS estimate to a range of $20.50–$20.70, up from $18.42 in FY24.

Adobe's dominant position in the content creation market, with a market share of approximately 61%, remains robust. The company's extensive data sets are crucial for developing a strong AI layer, which is evident in the performance of AI models like Google’s Gemini 2.5 and Veo 3. While AI-powered image and video generators may appeal to casual users, serious content creators rely on Adobe's precision editing tools. Adobe's AI capabilities, integrated into industry-standard apps, offer granular control over content, setting it apart from less productive AI generators. The company's AI embeds directly into apps, allowing users to replace backgrounds, add objects, or extend images contextually within layers. This precision editing is a significant advantage over AI generators that require constant re-prompting for useful results.

Adobe's financial performance speaks for itself, with $581 million more revenue this quarter compared to Q2 2024. The Digital Experience segment saw an 11% year-over-year increase in subscription growth, while the enterprise segment, including Business Professionals and Consumers Group, saw a 15% year-over-year rise in subscription revenue. Despite recent controversies, such as the Terms of Use debate regarding user content rights for AI training, Adobe has managed to navigate these issues with minimal long-term damage. The company's price-to-earnings (P/E) ratio is currently at 25.04, compared to the sector average of 34.73. Evercore ISI has reiterated its ADBE price target of $475 per share, with the average price target standing at $487.11. No analysts currently recommend selling ADBE shares, with the lowest price target at $280 and the highest at $630 over the next 12 months.