Every fast-growing consumer platform chases the same finish line. Get enough people through the door for free, then figure out how to charge them later.
Adobe Inc. (ADBE) crossed that finish line on September 10, 2026, when its fiscal third-quarter results showed its total user base topping one billion people for the first time in company history. Wall Street’s reaction was a shrug, not a celebration.
Morgan Stanley did not budge. According to a Morgan Stanley note shared with TheStreet, dated September 11, 2026, analyst Adam Wood reiterated an Underweight rating and a $240 price target on Adobe, the same call his team made two months earlier.
That target sits nearly 5% below where the stock closed on Friday, a gap that says more about what Wall Street wants from Adobe than the earnings report itself does.
Related: Adobe ends an 18-year era as AI pressure mounts
Behind the billion user milestone
The quarter backed up the headline number. Revenue reached $6.76 billion, up 13% year over year, according to a regulatory filing Adobe submitted alongside its results. Non-GAAP earnings per share climbed to $6.13, up 15% from a year earlier, and total annualized recurring revenue reached $27.5 billion, according to the same filing.
Creative freemium users, including Firefly and Express, surpassed 100 million, up more than 70% year over year, according to The Wall Street Journal.
That combination, record revenue and the fastest user growth in company history, is exactly what bulls have wanted since the freemium pivot began. Shares closed at $252.23 on Friday, up 1.37% on the day, after tumbling as low as $241.51 earlier in the session.
The stock remains well below its 52-week high of $370.86, but comfortably above its 52-week low of $190.12.
Why Morgan Stanley isn’t convinced yet
The problem is not what Adobe reported. It is what stayed the same. Full-year guidance for annualized recurring revenue growth held at 10.2%, and operating margin guidance held at 45%, even after the beat, according to Adobe’s own targets.
Remaining performance obligations grew just 8% year over year, down from 12% to 13% growth earlier in the year, a deceleration Morgan Stanley called a source of added caution.
Hitting that full-year target now requires roughly $775 million of net new annualized recurring revenue in the fourth quarter, according to Morgan Stanley’s math, nearly double the third-quarter total, which itself fell 38% from a year earlier.
Morgan Stanley set this same $240 target back in July, when it first moved Adobe to Underweight over concerns about freemium conversion and leadership uncertainty. Two months and one record quarter for Adobe later, Morgan Stanley’s math has not changed enough to change its mind.
A new CEO inherits an unfinished bet
The timing compounds the pressure. Adobe announced on September 3 that Anil Chakravarthy will become president and CEO on December 1, succeeding Shantanu Narayen as executive chair, according to Bloomberg.
Narayen has led Adobe since 2007, and the handoff lands one week before its most consequential strategic bet in years.
More Adobe:
- Adobe ends an 18-year era as AI pressure mounts
- Adobe’s latest AI acquisition just breezed through Washington
Reuters reported that Adobe is racing against a wave of AI native rivals challenging its design dominance, a landscape Chakravarthy inherits on day one. Morgan Stanley’s own note was more specific, citing three things converging at once: a leadership change, an interim finance chief, and an unproven monetization strategy.
The broader financial picture:
- A $300 price target and Outperform rating came from CLSA one day before Morgan Stanley’s original downgrade in July, a split that has only widened.
- About 9.5 million shares were repurchased during the quarter, according to Adobe’s SEC filing, a pace unchanged even as executives tout the freemium bet’s long term payoff.
- Fourth-quarter revenue guidance of $6.8 billion to $6.85 billion left investors wanting more, according to Investing.com, keeping pressure on the stock amid the CEO transition.
The freemium bet is bigger than one stock
Adobe is not alone in betting that scale now beats revenue now. Across enterprise software, companies facing pressure from cheaper AI native tools are making the same trade, absorbing the cost of free users today for a larger paying base tomorrow.
What makes Adobe’s version notable is its scale: a freemium base larger than the population of most countries, built on a two-decade subscription business.
The real test will not arrive with Chakravarthy’s first earnings call in December. It will arrive the moment Adobe’s net new annualized recurring revenue stops shrinking and starts confirming that a billion users can eventually pay.
Until then, expect Wall Street to keep grading Adobe on the metric it hasn’t delivered yet, not the one it just did.
Related: Adobe’s latest AI acquisition just breezed through Washington