Adobe: After Lifting Guidance, Is the Beaten-Down Stock Ready to Break Out?

While off its lows, Adobe (NASDAQ: ADBE) stock is still down nearly 30% on the year over fears that AI will disrupt its business. However, the company continues to see solid revenue growth, produce robust free cash flow , and the stock remains cheap.

Let's take a closer look at Adobe's results and prospects to see if it can finally start to break out to the upside.

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To try to kick-start growth, Adobe has adopted a freemium model meant to help drive user adoption and convert casual users into long-term subscribers. This includes free offerings such as Adobe Express and mobile tools, as well as users getting limited monthly generative AI credits. The hope is that these users will buy more AI credits and eventually move to the company's more advanced premium subscriptions. Adobe said its monthly active freemium users grew 70% year over year to surpass 100 million in the quarter.

For its fiscal third quarter, Adobe saw revenue climb 13% year over year to $6.76 billion. This was above its prior forecast for revenue of between $6.67 billion and $6.72 billion. Adjusted earnings per share (EPS) jumped 15% to $6.13, ahead of its earlier $6.05 to $6.10 outlook.

Among individual segments, business professionals and consumers subscription revenue (which includes Adobe Acrobat and web-based solutions like Express) saw revenue increase by 16% to $1.91 billion. Creative and marketing professionals subscription revenue (which includes programs like Photoshop and Adobe Experience Manager) grew 13% to $4.65 billion.

Looking ahead, Adobe provided the following guidance, as seen in the table below:

Business professionals & consumers subscription revenue

Creative & marketing professionals subscription revenue

Data source: Adobe earnings releases. FY = fiscal year.

For the fiscal fourth quarter, meanwhile, it provided the following outlook: