Adobe Inc. provided a weaker-than-expected revenue forecast for the current quarter despite its ongoing efforts to monetize new generative AI features.
For the quarter ending in May, the company projects sales between $5.77 billion and $5.82 billion, slightly below analysts’ average estimate of $5.8 billion. Adjusted earnings per share are expected to range from $4.95 to $5.00, in line with the consensus forecast of $5.
Investor concerns grow as AI competition poses a threat to Adobe
Adobe is one of the biggest creative software providers and has embedded its generative AI model, Firefly, within applications like Photoshop and Premiere. The company has pitched Firefly as something that helps creators rather than replacing them, setting it apart from AI-native design tools like Midjourney and DALL·E.
However, rivals like Canva and Runway ML have also launched generative AI-powered design capabilities that make headway on Adobe’s once-unassailable position in the market.
While some investors think that AI will boost the value and essentialness of Adobe’s products, other investors fear it will lead to competition from AI-native products. This quarter, the software firm rolled out a pricing model of around 50 cents per AI-generated video and announced price increases for certain applications.
Shares fell roughly 3% in after-hours trading after finishing at $438.60 in New York. Adobe stock has lost 24% over the past 12 months. Investor sentiment has been influenced by concerns over how well Adobe could protect its pricing power in the face of AI-native rivals, particularly as open-source AI tools proliferate.
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Over time, perceptions of Adobe’s AI have been increasingly tied to competition discussions, according to Matthew Swanson, an analyst with RBC Capital Markets.
Upcoming investor event to shed light on long-term AI strategy
The company is scheduled to hold an investor event next week, during which it will discuss its long-term financial outlooks and provide additional details regarding its work on AI.
Investors will seek details on how Adobe intends to use AI to facilitate ongoing revenue growth and whether more AI-enhanced products will be added to its software portfolio.
In the fiscal first quarter, the company reported a 10% revenue increase to $5.71 billion, surpassing Wall Street’s expectation of $5.66 billion. Remaining performance obligations, a key indicator of future sales, reached $19.7 billion, slightly below analysts’ average estimate of $19.8 billion.
The digital media unit, which includes Adobe’s flagship creative and document-processing software, posted an 11% increase in sales to $4.23 billion. The unit’s revenue, including marketing and analytics software, rose 10% to $1.41 billion.
According to Chief Executive Officer Shantanu Narayen, Adobe’s success over the next decade will be driven by customer-focused innovation and new offerings for creators, marketing professionals, business professionals and consumers. He added that the company is well-positioned to capitalize on the acceleration of the creative economy driven by AI, and we are reaffirming our FY2025 financial targets.
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In December, Adobe projected full-year revenue between $23.3 billion and $23.6 billion, with adjusted earnings per share ranging from $20.20 to $20.50.
The company also detailed a change in the way it reports subscription revenue. Instead of one category, Adobe will now break down subscriptions into two segments — “business professionals and consumers” and “creative and marketing professionals.” This move reflects an effort to explain how various customer types use Adobe’s software.
While Adobe continues to dominate the creative software world, AI-native design startups and generative AI progress threaten their dominance. Analysts have pointed to the firm’s capacity to differentiate itself via proprietary AI models and exclusive integrations in its ecosystem as vital to ensuring long-term growth.
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