Adobe is prioritizing a freemium model for its artificial intelligence products to drive user expansion, a strategy that will slow the near-term growth of its annual recurring revenue. Concurrently, the company announced the impending departure of its Chief Financial Officer.

CEO Shantanu Narayen explained on an analyst call that simplifying registration and removing immediate payment barriers are the optimal ways to accelerate the adoption of Adobe's AI offerings.

Narayen stated that user data from the second quarter already reflects the impact of this strategic shift: monthly active users for Acrobat and Express grew year-over-year from 700 million to over 850 million, while MAUs for creative freemium products surged from 50 million to over 90 million.

Management indicated that this approach will pressure annual recurring revenue growth in the second half of this year. This metric is closely watched by investors to gauge whether the company's investments in AI are yielding returns.

Adobe has also paused its plan to increase prices for the Creative Cloud suite, focusing instead on user acquisition.

CFO Dan Durn commented, "This adjustment trades short-term ARR for faster MAU growth. Simplifying onboarding, boosting user engagement, and unlocking lifetime value will build a foundation for the long term. We are confident that scaling MAU at the expense of ARR is the right choice to drive future business growth."

Narayen believes Acrobat and Express have the potential to reach billions of users, while its creative products could attract hundreds of millions.

In after-hours trading Thursday, shares of Adobe (ADBE) fell 5.5% to $206.67. The stock had closed the regular session down 6.2% at $218.80, bringing its year-to-date decline to 37%.

The company also announced that Dan Durn will depart on June 15 to become CFO at semiconductor firm Marvell Technology. Steve Day, Adobe's senior vice president of corporate finance, will serve as interim CFO.

Durn's exit adds to upcoming top-level executive changes at the company.

Narayen stated in March that he would step down as CEO, ending his 18-year tenure leading the software giant, once a successor is identified. The consecutive leadership transitions mean Adobe currently has two key executive roles to fill. Like many peers in the software industry, the company faces pressure to demonstrate to investors that it can leverage AI for growth rather than be disrupted by it.

Buoyed by rising demand for its AI products, Adobe raised its full-year financial targets.

The company now expects full-year revenue in the range of $26.5 billion to $26.6 billion, up from a prior forecast of $25.9 billion to $26.1 billion. Its adjusted earnings per share guidance was raised to $24.35 to $24.45, compared to the previous $23.30 to $23.50.

According to a FactSet survey, the analyst consensus estimate was for full-year adjusted EPS of $23.54 and revenue of $26.06 billion.

For the second quarter, the company reported net income of $1.71 billion, or $4.25 per share, compared to $1.69 billion, or $3.94 per share, a year ago.

Excluding certain one-time items, adjusted earnings per share were $5.96, surpassing the analyst consensus estimate of $5.82.

Second-quarter revenue rose 13% year-over-year to $6.62 billion, exceeding analyst expectations of $6.45 billion.

At the end of the quarter, the company's annual recurring revenue reached $27.1 billion, ahead of the $26.6 billion analysts had anticipated. This figure includes approximately $480 million from the April acquisition of brand marketing platform Semrush Holdings and serves as a key indicator for investors assessing the returns from its AI business.

"Our performance demonstrates robust demand for our AI products across customer segments," Narayen said.

For the upcoming third quarter, the company forecasts adjusted earnings per share between $6.05 and $6.10 on revenue of $6.67 billion to $6.72 billion. Analysts had expected adjusted EPS of $5.77 on revenue of $6.52 billion.