Summary
Adobe reported record third quarter revenue of $6.76 billion, up 12.9% from $5.99 billion a year earlier. Year-to-date revenue reached $19.78 billion, up 12.5%. Subscription revenue made up 97% of the total. Total Adobe ARR exiting the quarter was $27.50 billion, up 11.2% year over year. Management said AI-first ARR grew more than 150% year over year, and the company crossed one billion monthly active users across its creativity and productivity solutions. Total customer group subscription revenue was $6.56 billion, up 14% year over year, or 13% in constant currency.
Profitability did not scale with the top line. Gross profit rose 12.2% to $6.00 billion, but gross margin slipped to 88.7% from 89.3%, a decline of 0.6 percentage points. Operating income was $2.35 billion, up 8.3%, and operating margin fell 1.5 percentage points to 34.8%. Net income of $1.83 billion rose 3.1%, while diluted EPS of $4.62 rose 10.5% from $4.18. On a non-GAAP basis, operating income was $2.97 billion, net income was $2.42 billion and diluted EPS was $6.13. Those non-GAAP figures exclude stock-based and deferred compensation expense of $544 million, amortization of intangibles of $58 million and acquisition-related expenses of $18 million. Cost of revenue rose 19%, driven by hosting, data center and AI inferencing costs. Research and development expense rose 18%, sales and marketing rose 11% and general and administrative expense rose 20%. The quarterly effective tax rate was 22%, up from 19%.
Creative & Marketing Professionals subscription revenue was $4.65 billion, up 13%, helped by Creative Cloud flagship apps, Adobe Experience Manager and agentic web apps, plus a contribution from Semrush. Business Professionals & Consumers subscription revenue was $1.91 billion, up 16%, on Acrobat strength. Revenue increased in all three geographic regions, with EMEA growing fastest. Cash generation held up. Operating cash flow was $2.52 billion for the quarter, up 14.8%, and $7.65 billion for the nine months, up 11.3%. Capital expenditures were $85 million in the quarter, up 18.1%. Deferred revenue ended at $7.20 billion, up 10.3%, and remaining performance obligations were $22.16 billion, up 8.4%, with current RPO at 67% of the total. Adobe repurchased roughly 9.5 million shares during the quarter.
Management raised its full year targets. For the fourth quarter of fiscal 2026, Adobe guided to non-GAAP diluted EPS of $6.30 to $6.35 and a non-GAAP operating margin of 44.0%. For the full fiscal year 2026, the company targets non-GAAP diluted EPS of $24.45 to $24.50, a non-GAAP operating margin of 45.0% and ending ARR growth of 10.2%. Both sets of targets assume a non-GAAP tax rate of 18.0%.
Several items deserve attention. The nine-month period included a goodwill impairment charge tied to the Publishing & Advertising reporting unit and loss contingencies from a legal settlement. The nine-month effective tax rate rose to 23% from 18%, which the company attributed to a smaller net tax benefit from non-U.S. operations and higher tax expense on stock-based compensation. Currency movements were a tailwind to reported revenue, as the dollar weakened against EMEA currencies. Adobe paid $6.82 billion for share repurchases in the nine months and had $24.55 billion left under its April 2026 authorization. The company agreed to buy Topaz Labs for approximately $340 million, a deal expected to close in the fourth quarter of fiscal 2026. Management listed the usual risks: competition and execution in AI, macroeconomic and geopolitical pressure, currency swings, litigation and regulatory actions, and changes in tax law.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2026 | Q2 FY2026 | QoQ | Q3 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $6.76B | $6.62B | +2.1% | $5.99B | +12.9% |
| Gross profit | $6.00B | $5.90B | +1.6% | $5.35B | +12.2% |
| Gross margin | 88.7% | 89.2% | -0.5 pp | 89.3% | -0.6 pp |
| Sales & marketing | $1.83B | $1.88B | -3.0% | $1.64B | +11.5% |
| General & administrative | $488.0M | $546.0M | -10.6% | $408.0M | +19.6% |
| Total operating expenses | $3.64B | $3.67B | -0.6% | $3.17B | +14.8% |
| Operating income (loss) | $2.35B | $2.24B | +5.2% | $2.17B | +8.3% |
| Operating margin | 34.8% | 33.8% | +1.0 pp | 36.3% | -1.5 pp |
| Net income (loss) | $1.83B | $1.71B | +6.7% | $1.77B | +3.1% |
| Net margin | 27.0% | 25.9% | +1.2 pp | 29.6% | -2.6 pp |
| Diluted EPS | $4.62 | $4.25 | +$0.37 | $4.18 | +$0.44 |
Risks
The filing states competition is intensifying as generative and agentic AI evolves, with competitors potentially using different data training strategies or proprietary data to develop competing solutions more rapidly. The risk factors warn that new entrants and AI or cloud-native companies could reduce renewal, upsell and cross-sell rates and increase downward pressure on pricing and gross margins.
Cost of subscription revenue increased 24% in the quarter ended August 28, 2026 versus the year-ago quarter, primarily from hosting services and data center costs including AI inferencing costs. Gross margin declined 0.6 percentage points and operating margin declined 1.5 percentage points in that quarter, and the filing warns AI investments may pressure margins without assurance of customer adoption.
The risk factors state that offering end-to-end solutions with generative and agentic AI capabilities has increased the complexity of technical and contractual assurances, leading to extended proof-of-concept cycles and longer enterprise contract negotiations. Adverse macroeconomic and geopolitical events such as trade disputes and tariffs have caused additional spend scrutiny and delays in enterprise customers' purchasing decisions, particularly for larger and more complex deals.
A goodwill impairment charge was recorded in the second quarter of fiscal 2026 related to the Publishing & Advertising reporting unit, and the filing states additional charges to earnings may be required. General and administrative expenses rose 30% year to date, with impairment of goodwill contributing 6 percentage points to that increase.
The filing states competition for talent, particularly with AI and cybersecurity backgrounds, is substantial and may intensify, and that hybrid work arrangements present operational, security and culture challenges. Higher compensation costs to retain senior management and highly skilled personnel may not be offset by innovation, improved productivity or increased sales.
Obligations under the EU AI Act have gone into effect and will be implemented in phases through 2030, while U.S. federal and state AI rules remain in development. Compliance may increase costs, delay or halt AI development, require changes to monetization strategies and indemnity protections, and subject the company to fines and liability, including risks from third-party AI models embedded in its solutions.
As a multinational with significant non-U.S. operations, Adobe is exposed to tariffs, trade disputes, sanctions, inflation, interest rates and currency fluctuations. In the quarter ended August 28, 2026, the weakening U.S. Dollar against EMEA currencies added approximately $40 million to revenue in U.S. Dollar equivalents, while adverse macroeconomic events have caused enterprise customers to delay purchasing decisions.
The Semrush acquisition closed in April 2026 and the pending Topaz Labs acquisition is expected to close in the fourth quarter of fiscal 2026 for approximately $340 million. The risk factors note prior difficulty obtaining regulatory approvals that resulted in termination of a previously announced acquisition and additional costs, and warn that expected benefits may not be realized.
During the nine months ended August 28, 2026, Adobe incurred loss contingencies associated with a legal settlement and other legal matters, contributing 8 percentage points to the year-to-date increase in general and administrative expenses. The filing notes the company has not prevailed in every lawsuit and may face future unfavorable outcomes given increasing regulatory and enforcement activity.
As of August 28, 2026, Adobe had $6.15 billion of senior notes outstanding and $250 million outstanding under its $3 billion commercial paper program, with $1.35 billion of senior notes reclassified as current debt and intended to be refinanced subject to market conditions. The filing warns that credit rating downgrades could increase interest costs and restrict future financing.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Current Remaining Performance Obligations (cRPO)
Total Adobe ARR
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q3 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.