TMTB Morning Wrap

Good morning. Futures +40bps. Oil -2%. BTC +3%. 2year yield dipping 3-4bps. Asia mainly red overnight: TPX -0.57%, NKY -1.16%, Hang Seng -0.98%, HSCEI -0.32%, SHCOMP -0.82%, Shenzhen -0.88%, Taiwan TAIEX -0.54%, Korea KOSPI -1.72%.

A few key articles overnight on Iran: WSJ (“Emboldened by Oil Shock, Iran’s Leaders Play Diplomatic Hardball”), NYT (“Weakened by War, Iran Hits Back by Strangling a Vital Waterway”), and an Axios report from early this mornings saying Trump told G7 leaders “Iran is about to surrender.”

Enough war talk, let’s get to the good stuff. We’ll hit ADBE and TTAN earnings first then dive into the usual. Happy Friday. Let’s get to it…

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ADBE -8%: Revenue/EPS Beat but NNARR Miss, Stock biz weakness & CEO Transition Adds Uncertainty.

Key KPI here was the NNARR miss coming in at $400M (-11% y/y) vs street at 450M and buyside who was hoping for closer to $470M+. Mgmt blamed it on the stock business miss due to GenAI. Sentiment awful heading in although heard of some longs nibbling pre-print here and there but numbers definitely worse than expected. Investors generally not fond of CEO Narayen, so likely won’t be missed although he did navigate the shift to subscription which did wonders for the stock.

Revenue was $6.398B, +12.0% y/y / +11% cc (last q +10.5% y/y / +10% cc) vs Street $6.277B, +9.9% y/y, while non-GAAP EPS was $6.06, +19.3% y/y vs Street $5.87, +15.6% y/y and non-GAAP operating margin was 47.4% vs Street 47.0%. Q2 guide was a touch better than Street, FY26 was reiterated.

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Key Takeaways:

• The most important negative incremental blamed for the NNARR miss was the faster deterioration in the standalone Stock business. Mgmt and the callback framed this as customers increasingly using generative AI as the starting point for creative workflows rather than legacy stock assets. That appears to have been about a $70M headwind to NNARR.

• The second major moving piece was the freemium/traffic mix shift. Creative freemium MAU crossed 80M, +50% y/y, total MAUs across Acrobat/CC/Express/Firefly surpassed 850M, +17% y/y, and mgmt repeatedly described a phase shift where more traffic is being routed to freemium or conversational entry points first, with monetization following later. Bulls will like the funnel growth; bears will say the company is asking investors to underwrite conversion rather than showing it.

• Mgmt said AI-first ARR more than tripled y/y, Firefly ARR exceeded $250M, Firefly subscription + credit-pack ARR grew 75% q/q, and generative credit consumption rose 45%+ q/q with հատկապես stronger video/audio usage.

• Enterprise commentary was solid. AEP & Apps and GenStudio ending ARR each grew 30%+ y/y, Firefly Enterprise new customer acquisition grew 50% y/y, and mgmt cited 650+ trials underway for LLM Optimizer, Sites Optimizer, and Brand Concierge.

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Bull vs Bear Debate

Bulls say that ADBE is still the category owner in professional creative tools and one of the few software platforms that can monetize AI across both consumers and enterprises. Bulls would say the quarter actually showed the right leading indicators: MAUs are expanding very quickly, AI-first ARR has now moved above $400M, Firefly ARR is above $250M, credit consumption is ramping, and enterprise products like GenStudio, AEP & Apps, and Firefly Enterprise are growing at 30%+ rates. In that view, the current setup looks like an intentional short-term mix tradeoff where mgmt is broadening the funnel first and monetizing it later, not a structural collapse in demand. They would also point out that core products still looked strong: Acrobat/Express, Creative Cloud Pro, retention in enterprise, and $10M+ ARR customers all read healthy.

Bulls also lean on the enterprise narrative. ADBE is not just selling image generation; it is trying to own the content supply chain, workflow, orchestration, brand governance, and distribution layer in an AI world. That matters because enterprises care less about novelty and more about commercially safe models, governance, cross-channel orchestration, and integrating AI into existing workflows. The combination of Firefly, Foundry, GenStudio, AEP, LLM Optimizer, and Brand Concierge gives bulls a path to multi-year AI monetization that is harder for point solutions to replicate. They would say the market is still over-fixated on consumer disruption risk and underappreciating the size of the enterprise AI opportunity inside marketing and content operations.

Bears say that the quarter reinforced the core problem rather than disproving it. Bears would say the most important metric for the stock right now is not revenue or EPS, it is ARR quality, and that number was soft again. NNARR missed, ARR missed, the Stock business rolled over harder than expected, and mgmt still needs a significant 2H step-up to hit the full-year framework. ADBE is increasingly forced to trade current ARPU for future funnel growth, and there is not yet enough evidence that the freemium funnel converts well enough to offset that dilution. From that angle, the “phase shift” language is another way of saying monetization is moving out while disruption is happening now.

Bears also argue that the competitive backdrop has structurally changed. Generative AI lowers the barrier to entry in creative tools, reduces the moat of the legacy Stock product, and may cap pricing power over time even if ADBE keeps winning on product breadth. They will point out that even after solid AI metrics, AI-first ARR is still only a small portion of the total base, while the stock now has to absorb both disruption risk and CEO-transition risk at the same time. In that view, the right question is not whether ADBE has good AI products, but whether those products can monetize fast enough to offset cannibalization and whether a new CEO will need to spend more aggressively, potentially pressuring margins to defend the franchise.

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TTAN: Numbers seemed ok with slight beat to Q4 vs street (although a slight miss vs bogeys), smaller than usual GTV beat blamed on weather, and ‘27 a touch light.