Adobe (ADBE) stock sank as much as 13% early Thursday after its weak outlook stoked investor fears that the company’s AI tools aren’t paying off quickly enough to stave off growing competition from other generative AI software makers.
In its earnings announcement Wednesday, Adobe said it expects revenue in the range of $23.3 billion to $23.6 billion and adjusted earnings per share between $20.20 and $20.50 for the fiscal year 2025. Wall Street analysts had expected the company to forecast annual revenue of $23.8 billion and adjusted EPS of $20.52, Bloomberg data showed.
Adobe introduced its Firefly generative AI models in March 2023, which generate images and text effects. The creative software giant unveiled its Firefly video-generation model in October, months after Google debuted a similar model. Adobe’s tool also comes much later than releases from startups such as Stability AI, Midjourney, and Runway. And the competition is heating up: ChatGPT-maker OpenAI unveiled its text-to-video generation bot Sora just this week.
Those competitive pressures and concerns over monetization of the company’s AI tools have sent Adobe shares down roughly 20% this year.
According to Wall Street analysts, Adobe management has failed to clearly communicate its path to monetizing the tools.
“[I]nvestors are finding it hard to reconcile [the] company’s bullish AI commentary with soft results and growth guidance,” wrote Bernstein analyst Mark Moerdler in a note to investors Thursday. He lowered his price target on Adobe stock to $587 from $644 while maintaining his Outperform rating.
Adding to investor concerns was Adobe’s decision to stop providing quarterly guidance for a key metric within its Digital Media segment, which consists of its Creative Cloud and Document Cloud products.
“Given poor management communication, exacerbated by a lack of quarterly DM NNARR [net new annualized recurring revenue] guidance, investors will want to see improvement in numbers before gaining confidence in Adobe’s ability to benefit from GenAI, which may require more patience,” wrote Morgan Stanley analyst Keith Weiss in a note to investors Thursday morning.
“The good news is that Adobe appears better poised to pull the levers on monetization in 2025 with new subscription tiers and add-ons [for Firefly],” Weiss added. He maintained his $660 price target and Overweight rating on the stock.
William Blair analyst Jake Roberge wrote in his own note to investors early Thursday: “While in the near term we expect this guidance will likely put an overhang on the stock as investors contemplate whether the lack of pricing/growth tailwinds from the company’s new GenAI solutions is due to competitive/market pressure versus Adobe playing the long game in fostering top-of-funnel activity for its new AI solutions, we remain positive on the long-term trajectory of the business and believe that Adobe remains well positioned to capitalize on the GenAI opportunity.”
