Adobe Inc Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Keith Weiss - Morgan Stanley - Analyst : Excellent. Thank you guys for taking the question, and great to see the full year numbers going up in the right direction. Two questions for you, if I may. One, just on sort of the demo that you guys gave on that video at the beginning. Really, again, highlighting the Adobe Magic with kind of what you're doing with Nano Banana, and being able to manipulate images like that. Can you help us understand like what part of that is to the fusion engine coming from Nano Banana? What part of that is the Adobe infrastructure underneath that, that enables that fine grain manipulation, just to give a better understanding of kind of what the value proposition Adobe is bringing to the equation? That's question number one. And question number two, a broader concern that I've heard from investors is really about advertising platforms like Google or Meta putting diffusion engines in their ad platforms directly. In trying to ascertain that risk, can you help us understand like what percentage of your customer base would be those single channel marketers for which that could actually be a risk to Adobe of losing those customers? Thank you very much.

Question: Keith Weiss - Morgan Stanley - Analyst : Outstanding. Thank you guys.

Question: Brad Sills - Bank of America - Analyst : Wonderful. Thank you so much for taking the question here. Really great to see that you're exceeding that target for the full year of $250 million ARR from AI-first products. There's a lot in there, and it would be great to get some color from you as to -- on which component of that is driving the upside? And where are you in the strength in those AI-first products. Thank you so much.

Question: Brad Sills - Bank of America - Analyst : Great to hear. Thank you so much, Shantanu. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, ADBE.OQ - Q3 2025 Adobe Inc Earnings Call

Question: Tyler Radke - Citi - Analyst : Yeah, thanks for taking the question. I wanted to touch on the pricing side of the equation. Obviously, with the kind of line item optimization in the quarter. I was wondering if you could comment on if you have any texture on kind of the performance ex price and kind of how that was received by the installed base? And then just sort of how to think about the 4P times Q heading into next year?

Question: Alex Zukin - Wolfe Research LLC - Analyst : Yeah, hey guys, thanks for taking the question, and I guess maybe, Shantanu to the earlier point that you just made, I've got just two quick questions. One, it seems like this was kind of almost, I would say, a turning point quarter for you guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, ADBE.OQ - Q3 2025 Adobe Inc Earnings Call It was the first quarter, I think, were net new DM ARR actually was flat to maybe even growing for the first time this year on a tougher comp. You raised the guide. You exceeded your AI-first spending ARR target a quarter early. It seems like you're doing way better than expected. Can you help bifurcate like how much of this is just better adoption of the AI-first products versus 4P times Q? And ultimately, does this give you confidence in continuing to be able to grow DM ARR at least double digits for the foreseeable future? And then I've got a quick product follow-up.

Question: Alex Zukin - Wolfe Research LLC - Analyst : Excellent. And then maybe just as a follow-up. You alluded to it in the comments but nailed it, but as the nature of the web shifts for a kind of traditional search based to LLM based information discovery and traditional top of funnel marketing is changing in AI-driven the world. How do you see yourself the role in which you're helping CMOs adapt, which parts of your portfolio the best positioned to capture this change? And when do we start seeing that in kind of some of the DX book of business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, ADBE.OQ - Q3 2025 Adobe Inc Earnings Call

Question: Alex Zukin - Wolfe Research LLC - Analyst : Excellent. Thank you guys.

Question: Mark Moerdler - Bernstein Research - Analyst : Thank you very much and also congratulations on the strength of the AI adoption, the fact that you hit the AI numbers so quickly is really nice to speak. So what I have a question, there's a thesis out there for software in general that AI and the headwind to see to that seats will need to shift to consumption, the issue then can capture more consumption revenue than seats. How do you think about the relationship between seats and consumption in the Creative Cloud, do you see that there's any pressure on the seat side, do you see consumption as being upside to that? And separately, what are your thoughts on when AI could be enough to move the needle on the creative side? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, ADBE.OQ - Q3 2025 Adobe Inc Earnings Call

Question: Mark Moerdler - Bernstein Research - Analyst : That's very helpful. I really appreciate it.

Question: Michael Turrin - Wells Fargo Securities LLC - Analyst : Hey, great, thanks very much. I appreciate you taking the question. Dan, on margin, you've been speaking to mid-40s margin profile, still operating a bit above that this quarter. It looks like gross margins are actually up a touch versus last year. Why aren't you seeing degradation from AI adoption, given some of the metrics you're providing? Is that something we could or should expect to see as those numbers continue to ramp, just the why or why not in terms of the margin profile, I think, relative to what was initially expected. Thanks very much. Daniel Durn - Adobe Inc - Chief Financial Officer and Executive Vice President, Finance, Technology, Security and Operations I appreciate the question, Michael. Clearly, the company is performing well through this investment cycle, driving the velocity of innovation of all the great things that Shantanu and Anil and David have been talking about. So we feel really good on the engine of innovation and the velocity. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, ADBE.OQ - Q3 2025 Adobe Inc Earnings Call Underpinning that is a very clear sense of prioritization within the company. Narrowing the aperture around really what the growth vectors for the company are and what the must-win zones are. That focus and clarity on those real drivers of growth serves the company well in this environment. And then look at it from a productivity standpoint, I think there's two vectors of productivity that the company is driving to underpin margin delivery. First one, how we drive GPU training fleets to support training, the utilization, the algorithms we use to efficiently get at model construction as well as continually loading that GPU fleet to make sure there's high utilization over time. The second piece is inferencing. Constantly tuning the algorithms and cost per inference. We watch this maniacally, how we feel these fleet of GPUs to make sure that the reserve instances, which come in at very different price points than on demand that we constantly balance and optimize the cost structure that underpins the usage of that compute power. And then obviously from an internal working standpoint, adoption of these technologies, how we drive productivity gains in the company, how we augment individual employees from a productivity standpoint as well as ways of working inside of the company to continue to drive more and more productivity out of the world's best employees. It's a combination of all of these elements that come to bear and deliver a strong margin profile that the company is proud in the cash flow that supports it.

Question: Brad Zelnick - Deutsche Bank - Analyst : Excellent, thank you so much for taking the question. Anil, it's great to see agents for AEP now generally available. Can you talk us through the vision of how these agents drive greater value for customers? And then ultimately, how Adobe captures some of that benefit? Thanks.

Question: Brad Zelnick - Deutsche Bank - Analyst : Thanks, Anil. Exciting stuff and look forward to seeing everybody at MAX.

Question: Saket Kalia - Barclays - Analyst : Okay, great. Hey guys, thanks for fitting me in here. David, maybe for you. I mean I think a resounding theme on this call is sort of the infusion of AI into the core applications is really what's differentiating. And I think that's interesting from a couple of angles. But one of them, especially in my view, is retention. So can you just talk about what you're seeing in terms of retention trends as AI adoption grows, and then separately, just as a side, we've also started to see some noise out there about intellectual property issues, right, when it comes to AI usage. Maybe talk about how important the commercial safety aspect is as you spend time with enterprises.