Adobe Inc (Nasdaq: ADBE) heads into its next earnings report with a user-growth strategy that could strengthen the business or pressure its economics. The company is pushing AI tools to a much broader audience while its professional software remains the foundation of the business.
Some investors would take that for a bull case. Not me. Because if there’s anything being in marketing and the stock market has taught me, it’s that acquiring new customers and acquiring new paying customers are two different things. The former can move up the funnel and become the latter, but I can’t assume that happens with every business. Especially not when Adobe has opened its products to a much wider audience and added as many as 190 million new monthly active users.
If millions of those users adopt Adobe’s AI tools without upgrading to higher-value subscriptions, Adobe could grow usage faster than revenue per user grows. That would put pressure on the growth profile investors expect from a company built around recurring revenue and cash generation.
So where do those users go from here? Q3 earnings should give us another look.
The User Count Is Only Half The Story
When I wrote about Adobe after Q2, I argued that the market had brushed aside the 190 million new monthly active users because investors wanted to know who those people were and whether Adobe could turn them into meaningful revenue, and that question has become even more important heading into Q3.
Adobe already has evidence that some of the monetization is happening. AI-first ARR passed $500 million in Q2 and more than tripled year over year, while total ARR reached $27.10 billion.
But the 190 million figure includes people coming through Firefly, Express and Acrobat, so I would not treat every new user as a future Creative Cloud subscriber. The bigger opportunity lies in whether Adobe can move people who entered through simpler AI-powered products deeper into the ecosystem.
That’s a much better anticipation than whether revenue beats by a few million dollars. How much of that enormous new audience is becoming a paying Adobe customer?
Adobe Has Given Itself Room To Find Out
Adobe deliberately pushed harder on freemium growth while deferring some planned optimizations to the Creative Cloud line, according to the framework from our last breakdown. That choice makes sense if the company believes user acquisition today creates more valuable subscriptions tomorrow.
The Q2 numbers already showed where the business stood before this quarter. Total subscription revenue reached $6.39 billion, up 14% year over year, while Business Professionals & Consumers subscription revenue grew 16% and Creative & Marketing Professionals grew 13%.
Q3 guidance calls for total revenue between $6.67 billion and $6.72 billion, with Creative & Marketing Professionals subscription revenue between $4.61 billion and $4.64 billion and Business Professionals & Consumers subscription revenue between $1.87 billion and $1.89 billion. Adobe also expects non-GAAP EPS between $6.05 and $6.10.
If Adobe reaches those numbers while AI-first ARR keeps climbing, the argument that AI is eating into the old business gets harder to defend. If the company delivers the guidance but AI monetization remains stuck at roughly the same level, investors have reason to keep treating the 190 million users as a vanity metric.
And there is another piece of this I don’t want to overlook.
The Moat Could Be Changing Without Disappearing
Adobe built its moat around professional workflows that took years to learn, and our last breakdown made that point clearly. Someone who spent a career mastering Photoshop, Illustrator, Premiere Pro or After Effects had plenty of reasons to remain inside Adobe’s ecosystem.
AI changes the entry point. A person no longer needs the same level of technical skill to produce something useful inside Adobe’s products. That can hurt Adobe if easier tools convince customers that they no longer need expensive professional software. It can also work in Adobe’s favor if those same users start with Firefly or Express and eventually need more sophisticated tools.
Folks, the mistake would be looking at AI adoption and automatically calling it positive. More usage only becomes valuable when Adobe captures the economics from that usage. So the Q3 report should give us a better read on which direction the company is moving.
A Technical Decision Point
ADBE stock has spent the summer rebuilding after falling from the June area near $300 to roughly $190 in July, and the recovery carried ADBE back toward $300 before sellers pushed it down to $266.51 on Sept. 4.
ADBE now trades below its 20-day SMA at $274.12 and just under its 200-day SMA at $267.97, while the 50-day SMA sits at $248.85. That leaves the stock caught between the two averages that have shaped this recovery.
If buyers reclaim the 200-day and then push through the $274 area, the recovery starts to look like more than a bounce. The next real test sits around $280, where the stock has already struggled and where the rising trendline from July meets the recent price action.
But if earnings send ADBE back below the 200-day and toward the 50-day, traders have a different problem. The market would be telling us that good operating numbers still aren’t enough to restore confidence in the stock.
That is the setup I want going into earnings, because the report could decide whether this summer’s recovery becomes a new leg higher or another failed attempt to reclaim the old Adobe valuation.
I’m Looking For The Users To Become Customers
Adobe doesn’t need every new user to become a high-paying Creative Cloud subscriber for this strategy to work, but it does need enough of that audience to move deeper into the paid ecosystem.
If the company can do that while keeping its professional base intact, the market may have underestimated what this AI transition can become.
