Adobe (ADBE) Stock Drops After CEO Exit Overshadows Q1 Earnings Beat

TLDR

• Adobe agreed to a $150m DOJ settlement — $75m cash penalty plus $75m in free customer services — over hidden cancellation fees and difficult subscription exit processes.
• CEO Shantanu Narayen is stepping down after 18 years, with no successor named yet.
• Despite a Q1 earnings beat (revenue up 12% to $6.4bn, EPS $6.06 vs $5.87 expected), the stock fell over 5% on the CEO news.
• Citi cut its price target on ADBE to $278 from $315, keeping a Neutral rating, citing added uncertainty from the leadership change.
• Adobe stock is down more than 60% from its highs, now trading at a P/E of under 12 on adjusted earnings.

Adobe (ADBE) is having a rough stretch. A DOJ settlement, a CEO departure, and a trimmed Wall Street price target all landed within days of each other — even as the company’s own numbers came in ahead of expectations.

Adobe Inc., ADBE

The Department of Justice and Adobe reached a $150 million settlement to resolve claims that the company hid early termination fees and made it hard to cancel subscriptions. The deal requires court approval before it takes effect.

The complaint, originally filed alongside the FTC in June 2024, alleged Adobe buried fees that could run into hundreds of dollars in fine print or behind hyperlinks. Customers looking to cancel by phone reportedly had to go through multiple steps or repeat conversations with support staff.

The settlement covers $75m in cash penalties and another $75m in free services for affected customers.

Under the proposed order, Adobe must clearly explain early termination fees before customers sign up. For free trials longer than seven days, users must be notified before being switched to a paid plan.

Adobe denied any wrongdoing but said it welcomed an end to the legal proceedings. The company added it has already taken steps to simplify its sign-up and cancellation flows.

Subscriptions make up 97% of Adobe’s revenue — so the scrutiny on how it acquires and retains customers matters.

CEO Narayen Steps Down After 18 Years

The bigger stock mover, though, was the CEO news. Shantanu Narayen, who has run Adobe since 2008, announced he is stepping down. The stock dropped more than 5% at the open on Friday following the announcement.

Narayen will stay on until a successor is found and will remain as Chair of the Board. No replacement has been named.

That lack of a succession plan is part of what rattled investors. A CEO change at a company already under pressure tends to raise questions, and the absence of a ready replacement compounded that reaction.

Q1 Beat Wasn’t Enough

Adobe’s Q1 results were actually solid. Revenue came in at $6.4 billion, up 12% year-over-year and above the analyst consensus of $6.28 billion. Adjusted EPS hit $6.06, up from $5.08 a year ago, and beat estimates of $5.87. Q2 guidance was in line with or slightly ahead of expectations.

Despite that, the market focused on what’s next for the company rather than what just happened.

Citi cut its price target on ADBE to $278 from $315 and held its Neutral rating. The analyst cited the CEO change as adding uncertainty at what it called a “pivotal moment in Adobe’s AI evolution.”

Adobe has reduced its outstanding stock count by 6% over the past year through buybacks. The stock now trades at a P/E of under 12 on adjusted earnings — a low multiple for a software company of its size.

ADBE’s 52-week range is $244.28 to $422.95, with the stock currently sitting near the bottom of that band at around $249.

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