ADBE — Q2 FY2026 Financial Report Analysis

Record revenue, flat net income: a goodwill write-down, a legal charge and a higher tax rate absorbed the growth

Adobe's fiscal second quarter of 2026 (the three months ended May 29, 2026) delivered $6.618 billion of revenue, up $745 million or 13% from $5.873 billion. Below that line, almost nothing grew. Operating income rose 6%, to $2.238 billion from $2.109 billion. Net income rose 1%, to $1.712 billion from $1.691 billion — which Adobe's own management discussion describes as "relatively flat."

Three separate items account for the gap between 13% revenue growth and 1% profit growth, and they are worth naming individually because only one of them is likely to recur:

1. A $70 million goodwill impairment. Goodwill is the premium paid over the tangible value of a business in past acquisitions; when the acquired unit is worth less than that carrying value, the difference is written off. Adobe wrote down goodwill attached to its Publishing & Advertising reporting unit. That is $0.17 per share, and it landed in general and administrative expense.
2. A $30 million legal loss contingency, following the $62 million charge in Q1 — so roughly $92 million of settlement charges in the first half.
3. A higher tax rate: 24% versus 20% a year ago (23.5% versus 19.5% unrounded). Adobe attributes the increase to a smaller benefit from non-US operations, higher state taxes, and — notably — the goodwill impairment itself, which is "not deductible for income tax purposes." The write-down therefore hit twice: once as an expense, again as a higher tax rate on the profit that remained.

General and administrative expense rose 45% year over year as a result. Adobe's own attribution of that 45 points: 19 from the impairment, 9 from compensation, 8 from the loss contingency, 6 from software licenses, 3 from other items.

ARR — annualized recurring revenue — is the yearly value of subscription contracts in force at period end, measured at exchange rates fixed for the year so currency swings do not distort it. Operating margin is the share of revenue left after running the business, before interest and tax. "Constant currency" strips out the effect of exchange-rate movement.

The ARR headline is 12.5%; the underlying rate is about 10.5%

This is the most important number in the quarter, and it requires one adjustment. Total Adobe ARR reached $27.10 billion, up 12.5%. But Adobe discloses that approximately $480 million of that came from the Semrush acquisition, which closed April 28, 2026. Strip it out and organic ARR is roughly $26.62 billion — about 10.5% growth, slightly below the 10.9% Adobe reported in Q1.

Management's own full-year guidance corroborates this reading rather than the headline: Adobe now targets total ending ARR growth of 10.2% for fiscal 2026. Acquired ARR arrives once as a step up in the base; it does not repeat as a growth rate.

Semrush: $480 million of ARR, $40 million of revenue

Adobe completed the Semrush acquisition on April 28, 2026 for $1.874 billion, mostly cash. Semrush sells search-engine optimization tools, which Adobe is positioning as "search engine optimization, generative engine optimization and agentic search optimization" — in plain terms, helping marketers get found not only by Google but by AI assistants that answer questions directly.

The purchase price allocation shows $582 million of identifiable intangible assets (purchased technology $415 million over 7 years, customer contracts $107 million over 11 years, trademarks $60 million over 7 years), $262 million of acquired cash, and $1.251 billion of goodwill — which Adobe flags as non-deductible for tax, a headwind to the tax rate going forward.

The mismatch between the $480 million ARR contribution and the roughly $40 million of subscription revenue Semrush added in the quarter is not a red flag — it reflects one month of ownership plus the standard accounting reduction of an acquired company's deferred revenue balance. But it means the revenue benefit is mostly ahead, in Q3 and Q4, while the ARR benefit was recognized in full immediately.

There is an irony in the same quarter's write-down. The $70 million impairment hit Publishing & Advertising — the legacy unit Adobe folded out of separate reporting one quarter earlier, when it consolidated Digital Media, Digital Experience and Publishing & Advertising into a single reportable segment. Adobe is writing down the old advertising asset in the same quarter it paid $1.87 billion for a new marketing-adjacent one.

Customer groups and geography

Business Professionals & Consumers — Acrobat and Adobe Express — again grew fastest at 16%, on "strength in Acrobat." Creative & Marketing Professionals grew 13% on Creative Cloud Pro, flagship apps, Adobe Experience Platform and Adobe Experience Manager. Note that GenStudio, cited by name in the Q1 filing's list of Creative & Marketing growth drivers, is absent from the Q2 list — a single-quarter change in disclosure wording, not proof of a slowdown, but worth tracking given the segment consolidation leaves no other window onto that product line.

By region, EMEA grew 17% versus the Americas' 11%. As in Q1, most of that spread is the dollar rather than demand: the US dollar weakened chiefly against European currencies, adding approximately $116 million to reported revenue, against $22 million of net hedging losses. That net ~$94 million benefit is roughly 1.6 points of the 13% reported growth, consistent with the 11% constant-currency figure.

Product revenue was flat at $89 million and services and other fell 22% to $113 million, continuing their slow retirement.

The EPS math is mostly the buyback

GAAP earnings per share rose 8%, to $4.25 from $3.94, while net income rose 1%. The reconciliation is the share count: 402 million diluted shares versus 429 million, down 6.3%, after roughly $2.1 billion of repurchases in the quarter (8.5 million shares) on top of $2.48 billion in Q1.

Non-GAAP EPS rose 18%, to $5.96 from $5.06 — a 10-point spread over GAAP growth, the widest in recent quarters. That gap is not only the impairment and the settlement. Stock-based and deferred compensation added back was $556 million, up 15% year over year against 13% revenue growth. Compensation paid in shares is a real cost to existing shareholders; it is also the single largest item Adobe excludes from its preferred earnings measure, and it is growing faster than the business.

Takeaway: The quarter's cleanest signal is not the record revenue or the 12.5% ARR headline — it is that Adobe's organic ARR growth slipped to roughly 10.5% from 10.9%, and that management's own raised full-year target of 10.2% ending ARR growth points lower still. Revenue is being sustained at 13% by currency and an acquisition; the recurring-revenue engine underneath is decelerating modestly.

Guidance: targets raised, margins guided down

Adobe raised its fiscal 2026 outlook, now targeting full-year revenue of $26.50–$26.60 billion and non-GAAP EPS of $24.35–$24.45 (GAAP: $17.90–$18.00), with ending ARR growth of 10.2%. For fiscal Q3 2026 it guided to revenue of $6.67–$6.72 billion, GAAP EPS of $4.40–$4.45 and non-GAAP EPS of $6.05–$6.10, assuming a non-GAAP operating margin near 44.0%, a GAAP tax rate near 23.0% and roughly 395 million diluted shares. Unlike Q1's guidance, these targets now include Semrush.

The raise is real but narrower than it looks. The Q3 non-GAAP operating margin target of about 44.0% is below the 44.5% just delivered and well below Q1's 47.4%, and the full-year target of about 45.0% therefore requires a Q4 recovery to roughly 47%. Adobe is guiding to profitability that improves only at the very end of the year, while spending — sales and marketing up 16%, R&D up 11%, both against 13% revenue growth — runs ahead of it in the meantime.

The trajectory that follows: revenue growth in the low teens is well-supported by the $22.27 billion backlog (up 13%) and the Semrush revenue still to arrive, and the guided GAAP tax rate near 23% is now a known headwind rather than a surprise. The open question is the organic ARR rate. It has gone from 10.9% to about 10.5% across two quarters while Adobe's AI-first ARR — disclosed this quarter as tripling year over year and exceeding $500 million — is growing fast off a base that is still under 2% of total ARR. AI is not yet large enough to lift the consolidated growth rate, and the rest of the portfolio is setting the pace.

Source: Adobe Inc. Form 10-Q for the quarterly period ended May 29, 2026 (filed June 15, 2026, accession 0000796343-26-000112), and Form 8-K earnings release dated June 11, 2026 (accession 0000796343-26-000109).