Morning Note: Market News and an Update from Adobe.
Market News
Donald Trump ratcheted up tensions with Tehran, saying the US is “totally destroying” Iran’s regime militarily and economically. Meanwhile, Iran’s new Supreme Leader Mojtaba Khamenei pledged to keep the Strait of Hormuz effectively shut. He also warned that Iran may open additional fronts in the conflict if the US and Israel continue their attacks. Institutional investors are buying US dollars at the fastest pace in nearly two years.
Brent crude futures trade at around $100 after rising 9% yesterday, as Trump stressed that stopping Iran from acquiring nuclear weapons takes priority over oil price concerns. The US issued a second temporary waiver allowing the purchase of Russian oil.
The 10-year Treasury yields remain elevated at 4.27%, hovering near five-week highs on concerns about resurgent inflation, reinforcing bets that the Federal Reserve will keep interest rates higher for longer. Even so, Trump renewed his call for Jerome Powell to cut rates. Gold trades at $5,090 an ounce.
US equities fell last night – S&P 500 (-1.5%); Nasdaq (-1.8%) – as investors prepared for the release of January’s PCE price index, the Federal Reserve’s preferred inflation gauge. The annual rate is expected to edge up to 3.1%.
In Asia this morning, markets were also weak: Nikkei 225 (-1.2%); Hang Seng (-1.0%); Shanghai Composite (-0.8%).
The yen slid to its weakest level since July 2024.
The FTSE 100 is currently 0.8% lower at 10,224. The UK economy unexpectedly failed to grow in January, suggesting activity was stalling even before the conflict. GDP was unchanged after 0.1% growth in the previous month. Sterling weakened to $1.3269 and €1.1585, while Gilts yields rose to 4.74%. Money markets now assign a greater than 50% probability of a 25-basis-point rate hike by the Bank of England in December.
Source: Bloomberg
Company News
Last night, Adobe released results for the first quarter of its financial year to end November 2026. The figures were above market expectations driven by adoption of AI-driven tools and guidance for FY2026 was reiterated, However, in a surprising statement the group’s CEO announced he is stepping down after 18 years without a successor in place. In response, the shares were down 8% in after-hours trade.
Adobe is a global software company best known for the Acrobat product, considered the gold standard for creating, editing, scanning, signing, and sharing digital documents. The company generates annual revenue of almost $24bn through a recurring revenue model with real-time visibility – subscriptions account for more than 96% of the total. As a result, the business has traditionally been fairly resilient during economic downturns.
The group believes every disruptive technology has presented opportunities for Adobe to innovate and increase its addressable market opportunity. This has been true for cloud computing, mobile, as well as AI. The company estimates it has an addressable market of more than $200bn, leaving it well positioned for significant growth in the years ahead with its industry-leading products and platforms.
The company has introduced multiple generative AI models in the Adobe Firefly family including Imaging, Vector, Design, and most recently Video. However, there is increased competition, with smaller firms such as Figma eager to capture market share.
The concern is that the changing software landscape, where AI is lowering the barrier to entry for design, the company’s dominant position in the industry is being threatened by newcomers embracing the technology.
During the three months to 27 February, revenue grew by 11% in constant currency to a record $6.40bn, just above the market forecast of $6.28bn. Total Adobe Annualised Recurring Revenue (ARR) exiting the quarter was $26.06bn. Growth was driven by strong global demand for the group’s AI solutions - Acrobat AI Assistant ARR grew by around 3x year over year.
Exiting the quarter, Remaining Performance Obligations (RPO – i.e. its future sales pipeline) were $22.22bn, and Current Remaining Performance Obligations (i.e. expected to be recognised as revenue within the next 12 months) were 67%.
Total Customer Group subscription revenue rose by 12% to $6.17bn, made up of Business Professionals & Consumers subscription revenue (+15% to $1.78bn) and Creative & Marketing Professionals subscription revenue (+11% to $4.39bn).
Other smaller revenue streams are Product (down 5% to $90m) and Services & Other (down 19% to $110m).
The company earns very high operating margins, in the mid-40s. During the latest quarter, the margin slipped slightly from 47.5% to 47.4%. EPS grew by 19% to $6.06 in the quarter, above the $5.87 expected by the market.
The business is very cash generative, and delivered record quarterly cash flow of $2.96bn, and the group ended the period with net cash of $662m. The group repurchased $2.5bn of its shares during the year, leaving $3.89bn remaining on the current $25bn programme to be completed by the end of the year.
Adobe reaffirmed its guidance for FY2026: Revenue of $25.9bn-$26.1bn and EPS of $23.30-$23.50. The company is also targetting double-digit ARR growth in FY2026. Guidance for the current quarter – revenue of $6.43bn-$6.48bn and EPS of $5.80-$5.85 – was pretty much in line with the market forecast.
In a surprise announcement, the company disclosed that Shantanu Narayen, who has served as CEO of Adobe for 18 years, has decided to transition from his position as CEO after a successor has been appointed. Narayen will remain as Chair of the Board.
Source: Bloomberg
