Adobe Q4/2025 Earnings Review & my SEMrush takeover take
The company that is being killed by AI is still pretty much alive
Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
AI is the flavour of the year, and most investment talks center on this topic. Which companies will continue to dominate, which are the disruptors, and which companies will become obsolete very soon?
I published my take on the current state of AI here. Make sure to give it a look, and you will better understand what is happening right now.
Adobe released its earnings on the 10th of December 2025 after the close of the stock market. On the 11th, the first trading day since the earnings release, we saw something extraordinary. A green candle. You might not believe your eyes, but yes, the candle is green.
Before we dig into the earnings, make sure to revisit my deep dive to learn why I don’t believe that Adobe will be replaced anytime soon by AI.
Management’s summary
That’s how the management described the Q2/2025 results:
“Adobe’s record FY2025 results reflect our growing importance in the global AI ecosystem and the rapid adoption of our AI-driven tools. By advancing our innovative generative and agentic platforms and expanding our customer base, we are excited to target double-digit ARR growth in FY2026.”
“Adobe delivered another outstanding year, fueled by strong global demand for our AI solutions across Business Professionals & Consumers and Creative & Marketing Professionals customer groups. Looking ahead to FY2026, we are confident in our ability to deliver industry-leading innovations, double-digit ARR growth and world class profitability.”
Income Statement
FY2025 has been a successful one for Adobe. It is that simple.
And so was Q4. A lot of people worried about a slowdown of the business due to the all-encompassing AI threat. See for yourself if you can see Adobe’s business declining.
Revenue was up 10.5% vs Q4/2024, not bad for a dying company. The gross margins kept improving from 89% to 89.5% and as a result, the gross profit grew at 11.1% faster than the revenue at 10.5%.
The operating expenses increased in line with the gross profit, and therefore the operating income was also up 11.1%. As a result, the earnings before taxes (EBT) increased by $200 million.
The net income increased by $173 million (+10.3%) and the earnings per share by 17.2%. This metric is the most important one for us as investors. We want to know how much the company is making per share. If a company keeps diluting its shareholder base, we are getting less of the cake.
In Adobe’s case, management does its best to grow the cake and uninvite guests from the party. Their preferred method of doing this is buying back shares in a large fashion. Over the last year, the number of outstanding shares decreased by 5.9%. This is huge and a sign of great use of money. Buy back your share when it is cheap. Adobe’s buyback yield is now close to 8%. The number of outstanding shares dropped by almost 20%.
As a result of this, the earnings per share (EPS) increased a lot faster than the net income of the company.
These are fantastic numbers and just one of the reasons why I included Adobe as part of my best buys for December, even before the earnings were released.
Balance Sheet
Turning to the balance sheet, Cash and short-term equivalents decreased by $1.3 billion. The large buybacks come at a price, and as a result, the net liquidity of Adobe went down. Goodwill is still very high, and this is the result of previous takeovers.
What I like is the position “unearned revenue current”. Customers are paying upfront to receive services, the dream of every working capital manager. Even better: This position keeps growing. This indicates that the business to come is higher than it was a year ago. All of this unearned revenue current will eventually become real revenue that is visible on the income statement.
Long-term debt is still fully within a normal range.
Cash Flow Statement
Driven by the high net income and the large change in unearned revenue, the operating cash flow increased to $3.16 billion. Stock-based compensation (SBC) is still high, but within the realms of being tolerable. Of course, I would love to have this item at be significantly lower number.
Since Adobe is a very asset-light business, the capital expenditure is minimal, and the free cash flow is almost equal to the operating cash flow. So what does Adobe do with all this cash?
I gave the answer beforehand. The management uses these funds to buy back shares en masse. And this is right now the best way to use these funds: Buy back as much as you can while the stock is so cheap.
The SEMrush takeover
Adobe announced on November 19th that it will acquire SEMrush for an equity value of $1.9 billion in an all-cash acquisition. I am happy that Adobe pays in cash and does not dilute its shareholders with a large stock-based offer. The transaction is expected to close in the next six months.
Here is the short summary from Tikr on SEMrush:
Semrush Holdings, Inc. develops an online visibility management software-as-a-service platform in the United States, the United Kingdom, and internationally. The company enables companies to identify and reach the right audience for their content through the right channels. Its platform enables the company’s customers to understand trends and act upon insights to improve online visibility, and drive traffic to their websites and social media pages, as well as online listings, distribute targeted content to their customers, and measure the effectiveness of their digital marketing campaigns. The company serves small and midsize businesses, enterprises, and marketing agencies, including consumer internet, digital media, education, financial services, healthcare, retail, software, telecommunications, and others. Semrush Holdings, Inc. was founded in 2008 and is headquartered in Boston, Massachusetts.
Whether the deal makes sense from a business perspective remains to be seen. The stock price of SEMrush was at an all-time low before the takeover, and there are reasons for it.
SEMrush’s revenue growth slowed down in recent years, and while the operating margins improved until 2024, the company posted an operating loss in the last twelve months. The good news is that the company has a net cash position and no debt.
Let’s have a look at the cash flow statement for SEMrush.
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