Adobe's Q2/2026 Earnings Review

CEO Leaving. CFO Leaving. Should Investors Be Worried?

It’s that time of the quarter again: Adobe posts numbers and the stock goes down. Only this time, it had already dropped even before the earnings release. At least that is a new pattern. Let’s explore what happened.

About the title image

There is a storm landing, and the trees are being shaken properly. At the same time, there is some light in the background, giving hope for better weather.

Before we get into the earnings, make sure to read my deep dive on Adobe and my take on the Q1/2026 earnings. You will find both articles here:

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.

The drawdown reached a new low, and the stock is down a whopping 70% from its highs. It is fascinating how bad the sentiment has gotten.

AI is still the main reason for the selloff. The impression that Photoshop, Acrobat Reader, and co are being rendered obsolete while I am writing this is persistent. I believe this reasoning is too simple, and I went into more detail here:

I also shared my recent views on AI here:

Management’s summary

That’s how the management described the results:

Adobe delivered record revenue of $6.62 billion in Q2 reflecting strong AI-driven demand across our customer groups and we are raising our full-year fiscal 2026 revenue and non-GAAP EPS targets on the strength of that performance.

We are inspired to bring the magic of our new AI products to consumers, business professionals, creators, and marketers to deliver on our mission to Empower Everyone to Create.

Income Statement

To make it clear right away: Adobe is not a broken company, but a broken stock. The company is still highly profitable and is growing.

Revenue growth accelerated as it did in Q1 (more on that later). Operating expenses, however, increased fast (+14%) and as a result the operating income increased by just 10.9%. Due to a goodwill impairment and some legal settlements, the net income was basically flat (+1%) vs Q2/2025

Adobe bought back shares in a large fashion and decreased the number of outstanding shares by 6.3% year over year, and as a result, the earnings per share (EPS) increased by 8%.

The share buybacks have been accelerated since 2025, and the number of outstanding shares is going down nicely every quarter.

Balance Sheet

B as in Booking: Learn all about Booking and why the company is so interesting here:

The balance sheet is still clean, with cash and short-term investments at $5.6 billion being slightly less than the outstanding debt at $6.7 billion.

Goodwill increased due to the closing of the Semrush acquisition.

Current unearned revenue is still increasing. This is very important. Today’s unearned revenue will be tomorrow’s revenue. I am monitoring this one closely as it tells a great deal about how Adobe is doing. Indeed, it increased by 15% compared to Q2/2025. The slight decrease from the previous quarter also happened in past quarters and is nothing to lose sleep over.

Cash Flow Statement

No nig surprises here. Net income is largely transformed into operating cash flow by adding depreciation and amortization, adding the (too large and unfortunately growing) stock-based compensation, adding the change in unearned revenue and the change in working capital. The flat operating cash flow compared to last year is resulting mostly from a change in net working capital.

Capital expenditures remain minimal for a company this size; therefore, free cash flow is almost equal to operating cash flow.

So what does Adobe do with all the cash?

Adobe used the proceeds to pay for the Semrush acquisition and to buy back shares. Unfortunately, the share buybacks were slower than in most previous quarters. Given the current share price weakness, I would have loved to see higher repurchase activity.

The CEO is leaving. The CEO & CFO are leaving!

This is what I wrote in the last earnings review:

Wait, what? That was my first thought when I read that Shantanu Narayen is stepping down after more than 18 years. There is one take from Bill McDermott, CEO of ServiceNow, which I found quite insightful: “You either get really turned on by this environment … or probably it could be a bit more daunting”. Maybe the latter is the case for Shantanu, and he decided to hand over the reins of the company to someone better suited to this large transition into the world of AI. I am surprised that Adobe has not yet announced a successor, and it leaves a bitter aftertaste.

The question was back then: Why did they not announce that the current CFO, Dan Durn, would become the successor, since he seemed to be the obvious candidate to take over? Fast forward 3 months, and we know the answer: Dan Durn is leaving as well and instead joining Marvell Technology.

I guess the offer was too good to pass up, and it is a more pleasant job to be CFO of a company where the stock chart looks like this, vs the chart of Adobe.

Fun fact: Dan Durn has a history with the semiconductor industry. He was the CFO of Applied Materials until he joined Adobe in October 2021. Since he left Applied Materials, the stock price is up 350%. Let’s see if history repeats at Adobe.

You can argue that both events, by themselves, are not that bad. Shantanu Narayen is retiring after more than 18 years at the helm of Adobe, and the CFO is leaving for the seemingly more prosperous lands. Both combined within 3 months, however, shed a bad light on the company, especially since, as of today, there has been no announcement of who will become the next CEO and CFO. Adobe must share some insights very soon before losing the remaining bits of shareholder trust.

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Operational metrics

Both large segments are doing well. Creative & Marketing Professionals grew by 13% year over year, and Business Professionals & Consumers grew by 16%.

Adobe’s ARR (annual recurring revenue) keeps growing steadily and shows no sign of decline. This metric shows you the expected annual recurring revenue based on the current subscriptions. This is a forward-looking metric, so it is very important to keep an eye on it. While the overall ARR is growing, the growth itself has slowed down. Q2/26 is a positive uptick with +12.5% compared to Q2/26.

BUT there is something we need to address regarding this growth: the famous elephant in the room. Let’s call it Semrush.

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