Adobe posted record revenue and topped 1 billion monthly users but its stock still slid

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The software company posted record quarterly revenue of $6.76 billion and beat analyst estimates, but its stock fell after hours

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Adobe $ADBE reported record third-quarter revenue of $6.76 billion on Thursday and said it crossed one billion monthly active users, while raising its full-year financial targets.

Total revenue climbed 13% year-over-year, with subscriptions accounting for the majority of the gain at $6.58 billion, compared with $5.79 billion twelve months prior. The company earned $1.83 billion in net income, translating to $4.62 per diluted share, versus $1.77 billion, or $4.18 per share, in the year-ago period. On an adjusted basis, earnings came in at $6.13 per share. Analysts had expected adjusted earnings of $6.08 per share and revenue of $6.69 billion, according to the Wall Street Journal.

Adobe lifted its full-year revenue target to a range of $26.576 billion to $26.626 billion and its adjusted earnings-per-share target to between $24.45 and $24.50, the company said. The previous full-year guidance called for adjusted earnings of $24.35 to $24.45 per share on revenue of $26.5 billion to $26.6 billion. For the fourth quarter, Adobe is projecting revenue of $6.8 billion to $6.85 billion and adjusted earnings of $6.30 to $6.35 per share.

Despite the results, Adobe stock fell 2.3% to $243.08 in after-hours trading.

The one-billion monthly active user milestone was driven in part by Adobe's push into freemium artificial intelligence products. The company's creative products saw their freemium monthly active user count surpass 100 million in the quarter, a figure more than 70% higher than a year earlier, according to the Wall Street Journal. AI-first annualized recurring revenue grew more than 150% year-over-year, the company said. Total ARR exiting the quarter was $27.50 billion, and the company expects full-year ARR growth of 10.2%.

The freemium push carries trade-offs. According to the Wall Street Journal, executives pointed to the strategy as a contributing factor behind slower remaining performance obligation growth and a dip in net new ARR.

Adobe reported record second-quarter revenue and disclosed a CFO departure in June, a period that also set off a parallel search for a new chief executive after chair and CEO Shantanu Narayen announced plans to step down. The company announced last week that Anil Chakravarthy, who leads its customer experience division, will take over as chief executive on Dec. 1, according to the Wall Street Journal. Steve Day, the company's senior vice president of corporate finance, is serving as interim CFO as Adobe conducts a search to permanently fill the role vacated by Dan Durn, who departed for Marvell Technology in June.

"Adobe delivered record Q3 results, reflecting the strength of our AI innovation, expanding customer reach and leadership across creativity, productivity and customer experience," Narayen said in a statement.

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