ADOBE dropped about 10 per cent in extended trading after giving a weak outlook for sales in the current quarter, fuelling concerns that new artificial intelligence (AI) focused startups pose a competitive threat.
Revenue will be US$5.25 billion to US$5.3 billion in the period, the company said on Thursday (Mar 14). Analysts, on average, projected US$5.31 billion, according to data compiled by Bloomberg. Profit, excluding some items, will be as much as US$4.40 a share, compared with analysts’ average estimate of US$4.38.
The longtime leader in software for creative arts professionals has faced anxieties that new generative AI-based startups will cut into its market. Adobe has responded by putting its proprietary AI model, Firefly, into its top products such as Photoshop and Illustrator. Still, a recent demonstration by OpenAI of its video-generation model, Sora, reignited investors’ concerns about competition.
Adobe expects US$440 million in new recurring creative business in the current quarter, below the US$459 million expected by analysts. That likely disappointed investors who want to see greater financial impact from the new AI features, said Parker Lane, an analyst at Stifel. “Investors are hearing a lot of great things from the company on the AI front, like increased adoption, and are simply waiting for that to reflect itself in the fundamentals.”
The shares hit a low of US$506.11 in extended trading after closing at US$570.45 in New York. After jumping 77 per cent in 2023, the stock has dipped 4.4 per cent since the start of the year. This underperformance is due to fears about competition both from generative startups such as OpenAI and longer-standing rivals such as Canva, wrote Keith Weiss, an analyst at Morgan Stanley, ahead of the results.
In the fiscal first quarter, sales increased 11 per cent to US$5.18 billion. Profit, excluding some items, was US$4.48 a share. Wall Street expected revenue of US$5.14 billion and adjusted earnings of US$4.38 a share.
The digital media unit, which includes Adobe’s flagship creative and document-processing software, posted sales that gained 12 per cent to US$3.82 billion in the period ended Mar 1. Revenue from the division that includes marketing and analytics software rose 10 per cent to US$1.29 billion.
The company is already beginning to monetise the new AI features and will increase these efforts in the second half of the year, executives said in remarks prepared for a conference call after the results. Firefly has been used to generate over 6.5 billion pieces of media, executive vice-president David Wadhwani said.
The company announced a new US$25 billion share buyback programme. Adobe’s previous stock repurchase plan for US$15 billion was scheduled to expire at the end of fiscal 2024.
In December, Adobe said it was abandoning its planned merger with product design startup Figma in response to regulatory pressure, which freed up billions in cash. It is also ending its effort to create a product internally to rival Figma, and instead may explore the product category through partnerships. BLOOMBERG
