Adobe (NASDAQ: ADBE) recently reported its quarterly results that were ahead of market expectations. However, it provided a weak outlook that sent the stock tumbling 11% in the after-hours trading session.
Adobe’s Financials
Adobe’s first quarter revenues grew 11% to $5.18 billion, ahead of the market’s estimates of $5.14 billion. Adjusted EPS of $4.48 also beat analyst estimates of $4.38.
During the quarter, Digital Media Segment Revenue Grew 12% to $3.82 billion with creative revenue growing 11% to $3.07 billion and Document Cloud revenue growing 18% to $750 million. Net new Digital Media Annualized Recurring Revenue (ARR) was $432 million, exiting the quarter with Digital Media ARR of $15.76 billion. Digital Experience segment revenue grew 10% to $1.29 billion with Digital Experience subscription revenue growing 12% to $1.16 billion.
Last quarter, Adobe paid $1 billion in termination fee to Figma as it terminated the $20 billion acquisition plan.
For the second quarter, Adobe provided an outlook of $5.25-$5.30 billion in revenues and an EPS of $4.35-$4.40. The market was looking for revenues of $5.31 billion and an EPS of $4.38.
Adobe’s Generative AI Monetization
Adobe continues to expand its generative AI offerings. It is already seeing strong adoption of the Firefly generative AI tool that it had released last year. Adobe Firefly has been aggressively integrated into both Creative Cloud flagship applications and more recently, Adobe Express. It has helped users generate over 6.5 billion assets to date. These assets include images, vectors, designs, and text effects and the tool continues to build on audio, video, and 3D images that will be released in the coming months.
Early adopters for Firefly included brands like IBM that are integrating Firefly into their content creation processes. IBM used Adobe Firefly to generate 200 campaign assets and over 1,000 marketing variations. The recently reported quarter saw the highest adoption of Firefly-powered tools in Photoshop since it had last released Generative Fill in May 2023. Adobe launched a free version of Firefly with limited features, but the premium version is available at $4.99 a month for 100 generative credits.
Adobe also recently announced the release of its new AI Assistant in beta. The new generative AI-powered conversational engine in Reader and Acrobat has been integrated into workflows to instantly generate summaries and insights from long documents, answers questions, and format information for sharing in emails, reports, and presentations. AI Assistant leverages the same AI and ML tools that were behind Acrobat Liquid Mode and provides a deeper understanding of PDF structure and content, thus increasing the quality and reliability of the AI outputs. The assistant will be able to review PDF documents and connect with users through a conversational interface. Adobe will release the AI tool on a subscription plan after the successful evaluation of the beta.
Analysts believe that AI will help drive Adobe’s product enhancements, but it will lead to growth in annualized recurring revenue only in the second half of the year.
Meanwhile, Adobe’s stock is trading at $499.73 with a market capitalization of $225.1 billion. It touched a 52-week high of $638.25 in December and a 52-week low of $331.89 in May.
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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