The overall earnings for this quarter were good, with record FCF and solid revenue, but the Q4 guidance was a bit light or in line. I would say that most fundamentals didn't change that much: margins are still healthy, FCF is strong, and the share repurchase program remains steady.
But the question still remains: will AI consume Adobe's moat? This is the most important question for this company, and this quarter highlighted the issue.
Net new ARR actually slowed by 37%, which shows that new paying customer acquisition is slowing. This could be for two reasons:
1. Competitors are taking away customers, and AI is eating Adobe's lunch.
2. New consumers are choosing the freemium model and using that instead of paid subscriptions.
I am not sure which is the truth, but my guess would be the second. In my opinion, this is backed up by the 70% YoY increase in freemium monthly active users, and the fact that overall monthly active users reached 1 billion, a 20% YoY increase.
Another interesting part was the AI first ARR, which grew at 150% YoY and 30% QoQ. This means that already paying customers are willing to pay even more for their premium products. This also means that around 37% of Adobe's ARR growth was fueled by this segment alone, which shows healthy growth, but it is still a very small chunk (around 2.35%) of the overall ARR.
What do you guys think about this quarter, and what did I miss?