Adobe (NASDAQ: ADBE) recently reported its quarterly results that continued to outpace market expectations. Like most of the tech industry, Adobe is also focused on AI and recently graduated Firefly, its AI model, out of its beta release. 

Adobe’s Financials

Adobe’s third quarter revenues grew 13% year to $4.89 billion, ahead of the market’s estimates of $4.85 billion. Adjusted EPS of $4.09 also beat analyst estimates of $3.97.

By segment, revenues from the Digital Media segment grew 14% to $3.59 billion with Creative revenue up 14% to $2.91 billion and Document Cloud up 15% to $685 million. Revenues from the Digital Experience segment grew 11% to $1.23 billion.

Digital Media Annualized Recurring Revenue (ARR) grew to $14.6 billion. Net new Digital Media ARR came in at $464 million. Creative ARR grew to $11.97 billion, and Document Cloud ARR grew to $2.63 billion.

Adobe expects to end the fourth quarter with revenues of $4.975-$5.025 billion and non GAAP EPS of $4.10-$4.15. The market was looking for revenues of $4.98 billion and an EPS of $4.03.

Adobe’s Generative AI Expansion

Recently, Adobe announced the general release of Firefly, its collection of Generative AI models, with native integration across Adobe Creative Cloud, Adobe Express, and Adobe Experience Cloud. The commercial release includes a new Firefly web application, a tool for exploring AI-assisted creative expression, in addition to the new Adobe GenStudio solution to solve Enterprise content supply chain needs. With new Generative Credits included in their subscription, Creative Cloud, Express, and Firefly subscribers will get expanded value of Firefly-powered capabilities as a core part of their workflows.

Adobe Firefly for Enterprise is now generally available for businesses to confidently deploy AI-generated content. Customers will be able to access Firefly for Enterprise through Creative Cloud, Express, and Experience Cloud. Firefly is expected to be especially useful for small businesses. The app will provide them with access to AI-driven features like Text-to-image and Text Effects, thus allowing to streamline the importing, editing, and synchronization of assets across applications. The tool will help these businesses accelerate several content and brand-focused tasks.

Since generative AI tools require a significant computing capability, Adobe is trying to manage the load through the introduction of a credit-based system called Generative Credits. Generative credits will provide priority processing of generative AI content across features powered by Firefly in the applications that the users are already subscribed to. They will allow users to convert text-based prompts into image and vector designs across various platforms.

The credit system will help small businesses manage costs while benefiting from Adobe’s advanced tools. Until November 1, 2023, Adobe’s paid subscribers won’t be subject to generative credit limits and the credit limits will become applicable starting November 1, 2023. Adobe released its pricing plan wherein subscribers of all its tools will have access to a monthly credit pool that will be utilized during the month. Once a consumer runs out of the credit, they will not lose access to Firefly, but the speed at which their request is processed will be slower.

Meanwhile, Adobe’s stock is trading at $511.60 with a market capitalization of $233.2 billion. It touched a 52-week high of $570.24 in August and a 52-week low of $274.73 in September last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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