管理層發言
Good day. And welcome to the Q2 FY 26 Adobe Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Douglas G. Clark, Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us. With me on the call today are Shantanu Narayen, Adobe's Chair and CEO; David Wadhwani, President of Creativity and Productivity; Anil S. Chakravarthy, President of Customer Experience Orchestration; and Steven Day, Senior Vice President, Corporate Finance, and Interim CFO. On this call, which is being recorded, we will discuss Adobe's second quarter fiscal year 26 financial results. You can find our press release as well as PDFs of our prepared remarks and financial results on Adobe's Investor Relations website. The information discussed on this call, including our financial targets and product plans, is as of today, June 11, and contains forward-looking statements that involve risk, uncertainty, and assumptions. Actual results may differ materially from those set forth in these statements. For more information on those risks, please review today's earnings release and Adobe's SEC filings. On this call, we will discuss GAAP and non-GAAP financial measures. Our reported results include GAAP growth rates, and non-GAAP growth rates, including constant currency rates. During this presentation, Adobe's executives will refer to revenue growth in constant currency rates unless otherwise stated. Non-GAAP reconciliations are available in our earnings release and on Adobe's Investor Relations website. I will now turn the call over to Shantanu.
Thanks, Douglas. Good afternoon, everyone, and thank you for joining us. We achieved $6.62 billion in revenue in Q2 representing 11% year-over-year growth. GAAP earnings per share for the quarter was $4.25 representing 8% year-over-year growth and non-GAAP earnings per share was $5.96 representing 18% year-over-year growth. Strong revenue growth was driven by subscription bookings to revenue conversion. We drove EPS growth through record top-line revenue and disciplined investments across the company. At Adobe, we continue to be driven by our mission to empower everyone to create and deliver innovative products to delight users based on our customer strategy. We are focused on business professionals and consumers, creators and creative professionals, and marketing professionals. For business professionals and consumers, we are delivering AI-powered quick and easy apps to stand out through creativity and productivity. For creators and creative professionals, we are delivering power and precision to bring creative visions to life across any media type and surface. For marketing professionals, we are delivering customer experience orchestration to create, deliver, and optimize personalized digital experiences. As we reflect on the market context and our first half performance, it is clear that relative even to the beginning of fiscal 26, AI is accelerating customer behavior at an unprecedented speed and we need to evolve our strategy and execution to address these changing expectations. Much like how developers have embraced and expanded the AI coding market, there is a transformation underway for how consumers are discovering, onboarding, and purchasing products across all categories, including creativity, product gaming, and entertainment. As it relates to creativity and productivity, there is an unprecedented demand across additional surfaces for the combination of content consumption and content creation. Conversational interfaces and agents now orchestrate across tools to achieve outcomes faster. The proliferation of media generation models is reshaping and democratizing content workflows from ideation through delivery. AI-first applications that will serve broader audiences need to provide free, intuitive onboarding that drives usage and monetization through paywalls. Big picture, the immediate opportunity for Adobe is to accelerate new user acquisition and lifetime value through a freemium offering. As it relates to business professionals and consumers, we have dramatically increased Acrobat and Express MAU from greater than 700 million to greater than 850 million year over year. The opportunity is to serve billions of business professionals and consumers through a comprehensive freemium funnel building on the success of the Adobe Reader model. Over the last year, we have delivered tremendous innovation across AI Assistant, PDF Spaces, Express, and conversational interfaces and made these innovations available across surfaces, including AI mode in Reader, on Chrome, and WhatsApp. Business professional and consumer traffic on adobe.com seeking Adobe capabilities is growing 35% year over year. We believe this traffic is better served through a customized friction-free onboarding experience without immediate paywalls and will result in greater customer acquisition and deeper engagement over time. Based on the early success and MAU growth of freemium journeys for Acrobat and Express, we are ready to expand this experience more aggressively. For next generation creators, the opportunity is to deliver an AI production studio across web and mobile that seamlessly integrates with the power and precision capabilities of Creative Cloud. We have increased our Creative Freemium MAU from 50 million to 90 million year over year. The opportunity is to attract hundreds of millions of additional creators through a freemium funnel based on the early success of Firefly. Over the last year, we have delivered tremendous innovation across ideation through Boards, generation with support for multiple media models, semantic image and video editing, and conversational interfaces that are available across surfaces including mobile, web, and flagship Creative Cloud applications such as Photoshop, Illustrator, and Premiere. The new personalized journeys for creators drove approximately 50% increase in Firefly ARR quarter over quarter through Firefly apps and credit packs. Based on this early success, we are confident that we should expand the Firefly premium experience to acquire and delight the next generation of creatives. Creative Cloud continues to perform well as the best-of-breed offering for creative and marketing professionals globally. While we focus on accelerating creator acquisition through the freemium Firefly funnel, we have made the decision to defer previously planned Creative Cloud second half line optimizations. As it relates to the customer experience orchestration, agentic opportunity in the enterprise, marketing professionals are looking to automate and rapidly create, deliver, and personalize content at scale across every channel in a way that drives customer engagement and elevates their brand. Content creation designed specifically for marketing use cases is exploding. New AI coworkers and agents offer organizations the ability to deliver automation and outcomes powered by context, data, model context protocols, and skills. These address the dual needs of enterprises to expand consumer centricity and achieve cost savings in the era of AI. Business models are expanding to include consumption and outcome-based pricing along with subscriptions. The total marketing opportunity across people, software, agency and channel spend is enormous. AI is changing enterprise behavior as they are increasingly bringing marketing capabilities in house through their adoption of software platforms and the creation of custom models that uniquely capture their brand intelligence. IT organizations are looking to Adobe to accelerate their provisioning, deployment, and customization to serve their consumers through the availability of headless and agentic capabilities with pricing models that address outcomes as well as AI usage. Customer experience orchestration AI-first ARR grew 4x year over year reflecting how Adobe is the leader in both the traditional marketing category and the emerging customer experience orchestration category. The introduction of Adobe CX Enterprise and CX Enterprise coworker at Adobe Summit expands the vision and delivery of our category-defining CXO solutions. The successful acquisition of SEMrush unifies our search engine optimization, generative engine optimization, and brand visibility solutions to further extend our CXO offering. We will deliver this integrated offering that addresses brand visibility at the Cannes Lions Festival of Creativity later this month. This combination of creativity and marketing uniquely differentiates Adobe. No other company brings together what creatives and marketers can do across our applications and delivery platforms. Adobe Gen Studio ARR grew over 25% year-over-year, reflecting enterprise demand for an end-to-end solution that spans workflow and planning, creation and production, asset management, activation and delivery, and reporting and insights. Adobe's AI innovation has driven an impressive 3x year-over-year increase in AI-first ARR to greater than $500 million. We believe now is the time to aggressively acquire the next generation of Adobe loyalists. The strategic shift to acquire more freemium customers through Adobe and Firefly lowers our second half ARR growth expectations from individual subscribers. We believe these changes make Adobe even stronger. We continue to target double-digit total ARR growth for Adobe which now includes the SEMrush acquisition. Based on our strong first half revenue performance and the inclusion of SEMrush, we are pleased to raise our fiscal year revenue and non-GAAP EPS targets. As we announced, Daniel Durn has decided to pursue a new opportunity outside the software industry. I would like to thank Daniel for his contributions to Adobe and wish him well. I am pleased that Steven Day, who has been at Adobe for 20 years, serving in numerous financial leadership roles, will serve as interim CFO upon Daniel's departure. I continue to be incredibly energized by Adobe's long-term AI opportunity and the innovative products we are delivering to a broader set of customers. Given my decision to transition to Board Chair, I wanted to provide an update on the CEO search, which is progressing well. The board has been actively engaged in a comprehensive process. While we all continue to be ruthlessly focused on driving execution, our goal is to have Adobe's next CEO in place to put their stamp on planning for fiscal 27 and beyond. I will now turn it over to David.
Thanks, Shantanu. Hello, everyone. AI is rewriting how the world creates and gets work done. And the audiences for creativity and productivity tools are bigger now than at any point in our history. From social creators and students to business professionals and large enterprises, the opportunity for Adobe is massive. These customers are looking for a range of products from easy-to-use creative tools to professional levels of power and precision, and are increasingly turning to conversational experiences to accelerate their work. Adobe is the only company that has the portfolio breadth to meet this broad range of creativity and productivity needs. We see this interest manifest in traffic growth, signaling demand for existing products and accelerating demand for new AI-first experiences. The demand for these new AI experiences begins with LLM conversations and intent-based searches and requires immediate gratification, so is best served with friction-free experiences. This shift in user behavior is playing out across business professionals and consumers and creators and creative professionals. While we continue to attract strong traffic to adobe.com, which grew over 40% year-over-year, our traditional direct-to-pay journeys may not always fulfill visitor intent, as a growing number of new users are first looking to quickly complete their intended task as they begin their relationship with Adobe. Given products like Adobe Firefly, Express, and Acrobat AI Assistant have friction-free onboarding and significant adoption, we can now rebalance our journeys to better serve this new generation of users rather than send them predominantly to direct-to-paid journeys. This shift will come at the cost of short-term ARR but will accelerate user acquisition in MAU while building the foundation for long-term growth by removing friction from user onboarding, enabling deeper user engagement, and driving stronger lifetime value. In Q2, subscription revenue for business professionals and consumers was $1.85 billion growing 15% year-over-year. BP&C traffic grew 35% year-over-year with MAU growing from more than 700 million to more than 850 million in Q2 year-over-year, with significant contributions from AI Assistant, Express creation, and PDF Spaces sharing. This quarter, we introduced the Adobe Productivity Agent, shifting Acrobat from a static document tool to an interactive experience. The Productivity Agent is an AI experience built into Acrobat that draws on Adobe Acrobat document intelligence and Adobe Express's AI-first creation capabilities to help business professionals understand, create, and share information. They can turn documents into rich outputs, like presentations, podcasts, and social content, support conversational PDF editing, and power the new sharing capabilities in PDF Spaces. Customers get the agent through Acrobat AI plans. Users can also now share branded PDF Spaces with customizable AI assistance tailored to a specific audience, whether for sales prospecting, content marketing, or research delivery. Early adopters of PDF Spaces including Vice Media, Kid Cudi, Jessica Yellen, and Mindy Kaling are using PDF Spaces to move audiences from passive reading to interactive engagement. Additional business professional and consumer highlights include Acrobat AI Assistant paid MAU grew over 150% year-over-year, and lifetime AI users in Acrobat tripled year-over-year, showing both monetization traction and broad-based engagement. Express MAU grew more than 20% quarter-over-quarter, and Express users in Acrobat exported 9x more content year-over-year, demonstrating that the integration is driving creative output at scale. Acrobat Student Spaces launched this quarter to strong early adoption. The number of higher education students with access to Express Premium through their schools has grown more than 60% year-over-year. Customer wins this quarter include Accenture, Datadog, KPMG, Merck, NHL, New York State Court System, The Church of Jesus Christ of Latter-day Saints, Defense Information Systems Agency, and U.S. Department of Housing and Urban Development. In Q2, subscription revenue for creative and marketing professionals was $4.54 billion growing 11% year-over-year. Demand for AI content creation is exploding across ideation, generation, and semantic editing, and generative creative consumption continues to show strong growth. Our strategy is to empower everyone to create, from first-time creators to seasoned professionals to large enterprises seeking to scale content production. In Q2, C&P traffic to adobe.com grew over 50% year-over-year with Creative Freemium MAU growing from more than 50 million to more than 90 million. This immense volume of traffic drawn to the Adobe brand includes users seeking to purchase Creative Cloud, Photoshop, and other CC apps, and an increasing number of new users who are looking for Adobe magic to complete a creative task with a friction-free experience. Firefly freemium users who convert to our paid plans are highly engaged with early indications of significant credit consumption. Firefly ARR grew approximately 50% quarter-over-quarter through Firefly apps and credit packs. We were excited to launch the Adobe Creative Agent beta in Q2. The agent is available as part of Creative Cloud and Firefly subscriptions and provides a conversational experience to achieve complex and repetitive creative tasks. Agent usage will be monetized through our existing credit consumption model. The Adobe Creative Agent is also available in Claude, ChatGPT, and soon Copilot and Gemini. Additional creators and creative professionals highlights include in Premiere, we launched a brand-new color mode, a first-of-its-kind color grading experience built specifically for video editors. We continue to deepen AI capabilities across our flagship Creative Cloud applications: Photoshop added Rotate Object and Illustrator released Turntable, both enabling subscribers to turn 2D photos and illustrations into 3D renditions they can rotate and harmonize into their work. Capabilities like these grow record AI usage within our flagship applications. Firefly continues to support third-party models now with Kling 3.0 and Kling 3.0 Omni. Firefly ending ARR across Firefly app, Firefly credit packs, and Firefly Enterprise is approaching $300 million exiting Q2. Firefly Enterprise spanning Firefly services, Adobe Firefly Foundry, and brand intelligence is helping the world's largest brands industrialize content production with brand-safe custom models. The number of generated assets grew more than 4x year-over-year, making it an AI content engine for marketing at scale. Our announced NVIDIA partnership will bring accelerated computing to Adobe Firefly Foundry for faster, higher performing custom models across image, video, audio, vector, and 3D plus a cloud-native 3D digital twin built on Omniverse and OpenUSD. Enterprise wins this quarter include Merck, SAP, ServiceNow, Tesco, The Coca-Cola Company, Workday, and Xfinity. In summary, demand for creativity and productivity in the AI era is dramatically increasing as evidenced by our record traffic on adobe.com. While we continue to fulfill demand for Acrobat and Creative Cloud, the early success of Firefly Express and Acrobat AI Assistant gives us conviction that this is the time to aggressively serve new users with a friction-free freemium journey. We are confident that driving MAU, which has an impact on ARR, is the right trade-off and will drive future business growth. I will now turn it over to Anil.
Thanks, David. Hello, everyone. In Q2, AI continued to be a tailwind for our enterprise business, enabling us to deliver creative and marketing professional subscription revenue of $4.54 billion, growing 11% year-over-year. These results underscore the continued explosion in content and the imperative to deliver personalized customer experiences at scale. The opportunity for AI-powered marketing automation and customer experience orchestration is large and growing, and we are continuing to gain market share and expand our leadership. We are focused on three critical AI-for solutions: Adobe Experience Platform and native apps for customer engagement, Adobe Gen Studio for the content supply chain, and Adobe Experience Manager and Agentic Web apps for brand visibility. Q2 highlights included GenStudio ending ARR grew over 25% year-over-year as leading brands and agencies continue to standardize on Adobe to power their content supply chain. Subscription revenue for AEP and native apps grew over 30% year-over-year. AEP delivers over 70 billion profile activations and 35 trillion segment evaluations per day, as well as more than 1 trillion experiences per year. Over 80% of AEP and AEM customers are now using agentic capabilities built into our products. Over 1.5 thousand customer trials are underway for our agentic web offerings: Adobe LLM Optimizer, Sites Optimizer, and Brand Concierge. We saw 60% quarter-over-quarter growth for forward-deployed engineering and integrated services offerings designed to co-innovate and deliver customized AI-powered CXO solutions. Q2 industry analyst recognition included being named the leader in two Gartner Magic Quadrants including customer journey analytics and orchestration, and content marketing platforms, and two Forrester Waves, including email marketing service providers and customer analytics technologies. Global enterprise customer wins in Q2 included Dentsu, Merkle, Defense Information Systems Agency, Diriya Company, Kaiser Foundation Hospitals, Merck Sharp & Dohme, NHL, SAP, ServiceNow, Stagwell, Stellantis, Tesco, and The Coca-Cola Company. In April, we closed the acquisition of SEMrush, a leading provider of search engine optimization and generative engine optimization solutions. SEMrush added $480 million ARR to our book of business and expands our ability to serve marketers at every scale. We are rapidly integrating SEMrush into Adobe, uniting SEMrush's discoverability intelligence with Adobe's agentic web apps. We look forward to unveiling a comprehensive brand visibility solution combining SEMrush with Adobe at the Cannes Lions Festival of Creativity later this month. At Adobe Summit in April, where we hosted over 14 thousand in-person attendees, we launched Adobe CX Enterprise, a new end-to-end agentic AI system that simplifies how enterprises manage their entire customer life cycle from acquiring and engaging prospects to driving conversion and lasting loyalty. Adobe CX Enterprise brings together AI agents, agent skills, and model context protocol endpoints with an intelligence and governance layer to deliver reliable and auditable agentic workflows that enable highly personalized, differentiated customer experiences. Over 20 thousand global brands have built their business on Adobe, and CX Enterprise will help assure them into the era of agentic AI. As part of CX Enterprise, we announced CX Enterprise Coworker, a specialized AI agent that executes tasks based on business goals dramatically increasing productivity and campaign execution. CX Enterprise Coworker has garnered tremendous customer interest since launch, with over 150 leading enterprises in the early adoption program prior to general availability this week. At Adobe Summit, we also introduced Adobe Brand Intelligence, a continuous learning system that helps enterprises create and validate on-brand content faster and with less effort. Adobe Brand Intelligence learns from creative and marketing team feedback, approvals, and rejections in real time. It is a headless platform exposed through APIs so it can integrate with existing first- and third-party apps rather than running as a separate app. Customer experience is one of the first areas of AI-powered transformation for enterprises. Around the world, our conversations with C-level executives reflect how they view Adobe as the trusted partner for this transformation in the era of agentic AI. In Q2, we announced native integrations with major enterprise AI platforms including Microsoft Copilot, Anthropic, OpenAI, and Google Gemini. Our partnership with NVIDIA brings CX Enterprise Coworker capabilities into the NemoClaw enterprise agent platform, enabling brands to deploy Adobe's customer experience intelligence within NVIDIA's secure policy-governed, enterprise runtime. Leading global agencies Dentsu, Havas, Omnicom, Publicis, Stagwell, and WPP are standardizing on Adobe, combining our AI-powered capabilities with their unique IP and industry expertise, to co-develop innovative differentiated solutions for joint clients. Our vision, deep expertise, and creativity in marketing, track record of innovation, and broad partner ecosystem uniquely position Adobe as the partner of choice for AI-powered customer experience orchestration. Our extensive customer base, innovative CXO products, and robust pipeline give us confidence for a seasonally strong second half. I will now pass it to Steven.
Thanks, Anil. Today, I will start by summarizing Adobe's performance in Q2 FY 26, highlighting growth drivers across our customer groups, and finish with our financial targets. In Q2, Adobe achieved record revenue of $6.62 billion growing 13% year-over-year as reported and 11% in constant currency. Diluted earnings per share was $4.25 on a GAAP basis and $5.96 on a non-GAAP basis. Our GAAP results reflected a $70 million or $0.17 per share non-cash goodwill impairment charge related to our Publishing and Advertising reporting unit. Q2 financial highlights included total Adobe ending ARR of $27.1 billion growing 12.5% year-over-year including approximately $480 million from the acquisition of SEMrush. Total customer group subscription revenue of $6.39 billion growing 14% year-over-year or 12% in constant currency, including approximately $40 million from the addition of SEMrush. RPO of $22.27 billion exiting the quarter with RPO and CRPO both growing 13% year-over-year or 12% in constant currency. Cash flows from operations in the quarter were $2.17 billion and ending cash and short-term investments exiting Q2 was $5.63 billion, and we repurchased approximately 8.5 million shares of our stock during the quarter. Exiting Q2 we have approximately $27 billion remaining under our authorizations, including the new $25 billion authorization announced in April. Customer group results and insights. Business professionals and consumers subscription revenue was $1.85 billion increasing 16% year-over-year as reported or 15% in constant currency. Q2 growth drivers for Business Professionals and Consumers included sustained double-digit ending ARR year-over-year growth across all geographies. Acrobat and Express MAU surpassed 850 million growing approximately 20% year-over-year. Acrobat AI Assistant ARR growing approximately 3x year-over-year and strong performance in the enterprise across both commercial and government. Creative and Marketing Professionals subscription revenue was $4.54 billion increasing 13% year-over-year or 11% in constant currency. Q2 growth drivers for Creative and Marketing Professionals included growth in Creative Cloud driven by the CC Pro offering. Creative Freemium MAU, which includes web and mobile versions of Firefly Express, Premiere, Photoshop, and Lightroom, crossed 90 million, growing over 70% year-over-year. Continued strong generative credit consumption driven by video and audio. Firefly ending ARR, including Firefly apps and credit plans and enterprise Firefly offerings approaching $300 million with the intent to drive more traffic to Firefly freemium in H2. Ending ARR across GenStudio, AEP, and apps and AEM and Agentic Web growing over 20% year-over-year. Enterprise customers with over $10 million in ARR growing more than 20% year-over-year and continued strength in retention across the enterprise customer base. Let me now turn to our financial targets, which include SEMrush and assume current macroeconomic conditions. Given strong year-to-date performance, we are raising full-year revenue and non-GAAP EPS targets. For FY 2026, we are targeting total Adobe revenue of $20.5 billion to $20.6 billion; Business Professionals and Consumer subscription revenue of $7.44 billion to $7.48 billion; Creative and Marketing Professional subscription revenue of $18.21 billion to $18.27 billion which now includes approximately $280 million from SEMrush. Total Adobe ending ARR book of business growth of 10.2% year-over-year compared to our FY 2026 beginning book of business of $25.6 billion. GAAP EPS of $17.9 to $18 and non-GAAP EPS of $24.35 to $24.45. Our FY 2026 targets assume a non-GAAP operating margin of approximately 45%, a GAAP tax rate of approximately 22.5%, and a non-GAAP tax rate of approximately 18%. FY 2026 total Adobe ARR growth target of 10.2% now reflects both the addition of the SEMrush book of business as well as the strategic choice to accelerate MAU premium growth and defer previously planned Creative Cloud line optimizations. We believe this is the right long-term strategy to expand our customer base and strengthen the foundation for durable growth. For Q3 FY 26, we are targeting total Adobe revenue of $6.67 billion to $6.72 billion; Business professionals and consumer subscription revenue of $1.87 billion to $1.89 billion; Creative and marketing professional subscription revenue of $4.61 billion to $4.64 billion; GAAP EPS of $4.40 to $4.45 and non-GAAP EPS of $6.05 to $6.10. For Q3, we assume non-GAAP operating margin of approximately 44% and a GAAP tax rate of approximately 23% and a non-GAAP tax rate of approximately 18%. We believe Adobe is well positioned to capitalize on the expanding AI opportunity. Our focus remains on helping customers achieve better outcomes through innovation, relentless execution, and deep integration of AI across our portfolio. We are expanding our user base, deepening engagement, and investing with discipline in the opportunities that will drive Adobe's next phase of growth.
Thanks, Steven. We are at a transformative moment in the industry and for the company. The convergence of AI, agentic workflows, and the explosion of content demand is creating significant opportunities that play directly to Adobe's strength. My focus continues to be driving execution against our product roadmap and successfully expanding to new monetization models that reflect how the diversity of our customers want to engage with Adobe. I am committed to driving this as we finalize the right leader for Adobe's next chapter of growth. It gives me confidence beyond our products and groundbreaking technology is our people. Adobe remains one of the greatest places to work in the industry and the talent and culture we have built over decades is the foundation for this transformation. Thank you. We will now take your questions.
分析師問答
Thank you. Saket, once your mute function is turned off to allow your signal to reach our equipment. Again, that is *1 if you would like to signal with questions. And the first question will come from Michael Turrin with Wells Fargo Securities.
Hey. Brent. Thanks very much. Appreciate you taking the question. And I guess just realize it was not planned, but with Daniel leaving, I think we are going to feel questions on how the company manages through this level of transition in a world where there are a lot of questions around just disruption or changes to the market across software. So maybe you can just speak to how you maintain continuity with both the CEO search and CFO transition in motion and maybe also touch on the profile of what you are looking towards or think the company needs in its next stage at this point.
Sure, Michael. Let me take that. I will first start off by saying the leadership team that exists in the finance organization is absolutely seasoned and top-notch. I wish Daniel well. It is clear that where he is going is where his background and expertise has been. But I am confident that we will not miss a beat. As it relates to any other questions associated with the transition, my short answer is we have an incredibly seasoned leadership team and I will continue to work with them closely as I have in the past to make sure that we drive all our strategic objectives.
And just if I may, a follow-up just on the decision to defer line optimizations on Creative Cloud. I assume we are coming up on just potential price increase there. So maybe speak to why that is the right decision for Adobe today and how you think that kind of sets the creative business up for future growth.
Happy to, Michael. If we really look at it, this is about the AI opportunity for creativity. It is an incredible opportunity that is upon us right now and no other company is as well positioned given what we have with our models across our products and our interfaces. This is really about capturing MAU with Acrobat and Express, what we have done with Firefly, and addressing the entire creative market. Sometimes I characterize this much like what has happened with the code opportunity: AI has turned that market upside down and every company is thinking about how they can add to what is already being spent. The same opportunity exists in every category, whether that is gaming, entertainment, or creativity. This is an opportunity for us not just to focus on creative pros and communicators who have traditionally been our strength, but to become that AI platform for all creativity across every surface. The success we have seen with these new products—we talked about MAU and ARR—means we want to have a singular focus right now to capture that immense opportunity with a clear marketing message. It is also based on complete confidence that the creative business is extremely stable. The amount of innovation we have delivered in that space continues to make us a category leader. So we can defer the line optimizations; it is not going away. Anything that comes in the way of the company aligning and the market understanding that we are going after that entire creative opportunity right now would detract from the real prize for this company. I think in terms of the impact on ARR, you can think of it as maybe half of the impact on ARR is a result of deferring those creative price line optimizations, and the other half is about going full steam on what it takes to deliver the freemium experience.
And the next question comes from Alex Zukin with Wolfe Research.
Hey guys, appreciate you taking my question. I apologize for any background noise. Maybe just at the risk of redundancy or simplification, just why now to accelerate the freemium MAU motion? I think before, the previous messaging was that it could actually positively impact second half ARR. The freemium motion now is turning into a headwind as they convert. So maybe just simplify why now is the right time and then I have a quick follow-up.
Sure. Think of it more in terms of whether the early success we are having across all of these products gives us confidence to go even more aggressively. That is why now. When we look at the traffic coming to the Adobe site, the traffic is gushing. If we can capture that with a unique value proposition and a friction-free experience, anything that delays that capture risks diffusing the opportunity. We have built an incredible business, and we are always trying to figure out what we send to freemium and what we send to ARR. This singular clarity will enable us to capture way more people in the audience. The products—Acrobat Express, Firefly—are there, and we can support third-party models. If we do not take advantage of this opportunity right now, we will send people elsewhere when they want Adobe to help solve their creativity needs.
Maybe I will add a couple examples to demystify what we mean by changing user behavior. One example with Acrobat and one with Firefly. We see a shift to LLM usage driving intent-based search. Someone might type into a search engine, 'summarize this PDF.' We use SEO and SEM capabilities to rank high for that query. When the user clicks our link, we take them directly into Acrobat web with a single call to action: upload your PDF, and we summarize it for them. When we summarize it, we introduce them to the AI Assistant so they can ask questions. We use this process to let them build a habit before we start applying a paywall. If we took that traffic directly to a paid flow to buy Acrobat and download Acrobat, it would not produce as much long-term opportunity for Adobe. Similarly, with Firefly, we see growth in queries like 'generate pixel for social media posts.' We rank highly in SEO/SEM and then take them directly into Firefly so they can upload an image and create a pixelated version, introduce conversion to video, and so on. These are different flows and where the world is going. Users are engaging in these ways and we want to lean into that. We think we have the right products now, so this is the moment to go for it.
Not only are we seeing MAU increase, but we are seeing engagement increase as a result of serving that first experience because users are looking for Adobe. The satisfaction associated with completing their task makes them want to engage more, and those signals give us confidence that now is the time.
And then maybe just to follow up. If we think about the combination of that action and the postponement of the line optimizations as driving roughly, by our math, about a half-billion-dollar adjustment to organic ARR downward, what is the payback period on that $500 million you are investing in this motion? What is the payback period and multiple you think you can get as a result of the strategy you are embarking on?
On the Creative Pro line optimizations first, we can introduce them as we continue to deliver value. So that is a phase shift. We can introduce them later and we believe we will have better, more differentiated offerings once the premium offerings are successful. Regarding the freemium traffic, the payback plays out over time and we are already seeing some of it in Firefly. We shared some numbers on that as well as on Express which are growing well. That will play out over 2027. More important, it sets the company up for the right path to grow our customer base—like we did with Reader—which pays off for decades. As for how it might play out over the second half, if you look back at fiscal 2024 and 2025, typical seasonal patterns pay out roughly 40% and 60% across Q3 and Q4. Given we will be making more of these changes in Q3 in terms of changing traffic patterns, and we expect seasonal enterprise strength, some of the benefit may be a little more weighted to Q4. Hopefully that gives you color on the line optimizations and how the freemium shift might play out in Q3 and Q4 as you model.
And we will take our next question from Matt Swanson with RBC Capital Markets.
Thanks so much for taking my question. Not to front-run Cannes too much, but if we could focus a little bit on the brand visibility solution and the broader idea of what SEMrush brings to the Adobe platform. Could you talk a little more holistically about how that fits into your broader portfolio and what the compounding benefit could be over time?
Thanks for the question, Matthew. Brand visibility is a topic of huge interest to CMOs. As David noted, we are seeing this play out in our own traffic patterns and every brand wants the right placement regardless of which LLM customers are using. They want the right message and for their message to appear on LLMs, social media, and other platforms. The best way to do that is to take their content that resides in their content management system like Adobe Experience Manager and make sure it gets out there to the bots and agents that these LLMs use, or to third-party sites where these LLMs draw credibility. Making sure brand visibility shows up in the right places requires integrating what SEMrush brings—the outside-in knowledge of what is being prompted, what is being searched for, and the database they have of prompts and search queries—with the inside-out intelligence we have with customer content. Marrying those two products provides an opportunity to bring the most comprehensive brand visibility solution in the market, and that is what we are introducing at Cannes later this month. We are excited about this and believe this will be a must-have for every CMO.
And the next question will come from Brad Zelnick with Deutsche Bank.
Thanks so much for taking the question. Maybe on a different topic, we saw the announcement on the Creativity Connector with Google Gemini. Wondering how you are thinking about relationships with companies like Google that are seemingly developing their own design tools versus making Adobe innovations available in their apps? More broadly, how are you thinking about competition, partnerships, and co-opetition in the age of AI?
Thanks for asking that, Brad. We have made a lot of progress in how we think about the evolution of a creative agent and a productivity agent. We have taken our core capabilities in flagship applications and used them to create capabilities accessible to endpoints. If the Creative Agent can access 50 creative tools across our ecosystem, and that AI Assistant is available in Firefly and to our Creative Cloud subscribers, we have also made that AI Assistant available inside ChatGPT and Claude with Copilot and Gemini coming soon. That lets us go to where user experience and user intent initiate. If someone wants to create a logo, convert it to merchandise, and post that across social networks, much of that can be done conversationally. If they want deeper tools, we journey them to Firefly for richer AI tooling. The end-to-end experience is about meeting users where they are, letting them do more conversationally, reducing the bar to create, and then leveraging opportunities to monetize by converting them to paid Firefly usage. The monetization model for these AI agents is about credit consumption and drives more credit consumption and upsell opportunity.
You also have to look at the economics for partners like Amazon, Microsoft, and Google. We are large users of their cloud services which are significant revenue streams for them, and we have great partnerships with all three. With Google specifically, we partner on media and entertainment and use their frameworks in our applications. OpenAI and Anthropic are focusing heavily on code right now, and creativity is an area where Adobe is uniquely qualified. This is our time and opportunity to leverage what those companies provide, and we maintain strong partnerships while focusing on our consumer and creative pros strengths.
And the next question will come from Billy Fitzsimmons with Piper Sandler.
Thanks for taking the question and fitting me in. I want to go back to the discussion earlier. There is a lot of debate right now around moats in software. At Summit, there was a big focus on what you are doing with AI agents internally and an emphasis on your differentiation of having 20 years of customer relationships and proprietary data. Could you talk about the importance of that in the ecosystem? And a second question, you announced a $25 billion share repurchase authorization at Summit. How do we think about your ability and propensity to do tuck-in M&A in this environment?
Maybe I will start with the second question. We had a $25 billion authorization previously and added another $25 billion in April. Of the first authorization, about $2 billion remained and we would have completed it in roughly 11 quarters. That demonstrates confidence in buybacks. SEMrush was a good acquisition; we are confident in our ability to monetize it and it further differentiates our marketing solutions. We are continuously looking at many companies and expect interesting tuck-ins, especially in technology where business models may not yet be sustainable or monetizable, making it a good time for Adobe to look at technology acquisitions. Regarding differentiation, our focus on content and behavioral data is a huge differentiator. CEOs and CFOs are talking to us about customer experience transformation and view Adobe as the partner to help with that transformation. Our capability to combine content and customer understanding sets us apart in customer experience orchestration. On the creative side, our depth of technology across audio, video, and imaging gives Firefly and Creative Cloud advantages in speed and velocity of innovation. That is how we view our differentiation: anyone who wants to create content and use it for marketing can rely on Adobe.
And our next question will come from Kirk Materne with Evercore ISI.
Thanks for taking the question. David, when we think about this push into freemium and changing that up, how do you get comfortable on the long-term economics in terms of lifetime value? What are you seeing in terms of those customers going through a gestation period and then monetizing over a certain period of time? Can you add more color on how you get comfortable about the stickiness of those users after a certain period of time and the ultimate monetization opportunity?
Happy to take that. The foundation starts with understanding user intent and behavior. The transition to intent-based search gives us an opportunity to massively open up the top of funnel; we have seen over 40% increase in traffic to adobe.com from these activities. When users go from searching directly to using our product, engagement increases and we see higher MAU growth. On the back end, when freemium users convert to paid, they tend to have much higher engagement and usage patterns than those that go directly into paid, which translates to long-term lifetime value. We see the right signals: product readiness, traffic up 40% year-over-year, MAU up over 70% year-over-year, and early ARR translation with Firefly showing 50% ARR growth quarter-over-quarter. These early indicators give us confidence. Bringing more traffic over needs time to play out, but the opportunity is larger than ever and we have the foundation to win.
And our next question will come from Brent Thill with Jefferies.
Shantanu, one of the questions we get is about the reset for this next tectonic shift. I realize you are guiding margins down a bit, but many investors believe you could be doing more and putting a much bigger moat and investment to protect the company. Why not be more severe in terms of the push and pivot? You went through this from perpetual to subscription and had incredible results from that pivot. Maybe it is not the right analogy, but how should we think about this?
Brent, this is an indication that we are pivoting to acquire customers. We are spending on models, marketing, and product to capitalize on the opportunity. We will not be short-term focused about this; we intend to spend the money necessary to capture the opportunity. The investments are being made in cloud compute, models, marketing, and product. The good news is we get many of Anil's enterprise products at favorable economics to use. Our efficiency on this is probably better than many others in the industry. We intend to be disciplined but aggressive in investing to win in this era.
And moving on to Saket Kalia with Barclays.
Okay, great. Thanks for taking the question. Maybe for Shantanu and David: thinking about the original freemium business at Adobe, it was really Acrobat. The hope is that products like Express and Firefly can replicate that success. Can you compare and contrast the next generation of freemium products in terms of what is similar and what is different than the successful freemium businesses built over the years?
Thanks, Saket. For broader context, we have a deep data-driven operating model around Acrobat's funnel. We understand the usage patterns across desktop reader, Chrome extension, Edge extension, and mobile. We can analyze utilization in these free experiences and identify ideal surfaces to place paywalls and convert users—things like 'edit PDF' or 'redact PDF' are good conversion opportunities. That same learning and infrastructure applies to Express, Firefly, and Acrobat AI Assistant. The difference now is that intent often starts outside the product, in search. The investment to drive a broader percentage of search directly into these same flows is where we can fundamentally reshape the business. Acrobat taught us how to instrument flows and convert, and we can apply that infrastructure to new experiences. This is why we're investing heavily now.
I'll add that we originally tried to charge for Acrobat Reader and customers told us to let them use it and find ways to monetize later. The common elements across these efforts are product-first focus and driving usage. In Reader's case it was distribution; in this era it's premium. The lesson is the same: get the product right and get usage because that's how you monetize. On Firefly, we can expand from Firefly into Creative Cloud quite seamlessly. The learning for monetization is usage first, then find appropriate ways to add value and monetize. Usage is the most important metric. Thank you for joining today's call. For those going to Cannes, stop by and see what Adobe has to offer. Otherwise, we will see you at the next call.
Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.