Adobe falls on weaker forecast due to fears of AI competition.

(Bloomberg) — Adobe Inc. extended trading fell nearly 10% after giving a weak outlook for sales in the current quarter, fueling concerns that new AI-focused startups pose a competitive threat.

Most Read from Bloomberg

The company said in a statement Thursday that revenue in the period would be $5.25 billion to $5.3 billion. Analysts averaged $5.31 billion, according to data compiled by Bloomberg. Excluding certain items, earnings will be $4.40 per share, compared with analysts’ average estimate of $4.38.

The long-time leader in software for creative arts professionals worries that new generative AI-based startups will cut into its market. Adobe has responded by putting its proprietary AI model, Firefly, into high-end products like Photoshop and Illustrator. Still, Sora’s recent demonstration of OpenAI, its video generation model, reignited investor concerns about competition.

“Expectations were probably a little bit higher in terms of the guidance we’ll be giving,” Chief Executive Officer Shantanu Narayan said during a conference call after the results. “But you know I’m really optimistic about what we’ve done,” he said of the company’s AI initiatives.

Read more: Inside Adobe’s ultra-cautious gambit to put AI into everything

Adobe expects $440 million in new recurring creative business in the current quarter, below the $459 million expected by analysts. In an interview on Bloomberg TV, Stifel analyst Parker Lane said it likely disappointed investors who wanted to see more financial impact from new AI features. “Investors are hearing a lot of great things from the company on the AI ​​front, like increased adoption, and are just waiting for that to show itself in the fundamentals.”

Shares hit a low of $503.80 in extended trading after closing at $570.45 in New York. After jumping 77% in 2023, the stock is down 4.4% since the start of the year. The underperformance is due to competition concerns from generative startups like OpenAI and long-running rivals like Canva Inc., wrote Keith Weiss, an analyst at Morgan Stanley ahead of the results.

In the fiscal first quarter, sales rose 11 percent to $5.18 billion. Profit, excluding certain items, was $4.48 per share. Wall Street expected revenue of $5.14 billion and adjusted earnings of $4.38 per share.

The digital media unit, which includes Adobe’s flagship creative and document processing software, posted sales that rose 12% to $3.82 billion in the period ended March 1. Revenue from the division, which includes marketing and analytics software, rose 10% to $1.29 billion.

The company is already starting to monetize new AI features and will ramp up those efforts in the second half of the year, executives said in a conference call after the results. Executive Vice President David Wadhwani said Firefly has been used to create more than 6.5 billion pieces of media.

New innovations in video-creating AI should fuel demand for Adobe’s existing editing tools, as creators will need to work with videos, Narayan said. “The idea that the next Oppenheimer will be done using text-to-video prompts — that’s not going to happen for decades,” he added.

Wadhwani said Adobe will be rolling out more video features in the coming months.

The company announced a new $25 billion share buyback program. Adobe’s previous $15 billion stock repurchase plan was set to expire at the end of fiscal 2024.

In December, Adobe said it would acquire product design startup Figma Inc. in response to regulatory pressure. is abandoning its planned merger with , which freed up billions in cash. It is also ending its attempt to create a product internally to compete with Figma, and may instead explore product categories through partnerships.

(Updates with comments from the CEO in the fourth paragraph.)

Most read from Bloomberg Businessweek.

©2024 Bloomberg LP

Leave a Comment