Adobe posts biggest gain since 2020 after AI sales success

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(Bloomberg) — Adobe Inc . Shares posted their biggest gain in more than four years after forecasting strong future sales for its creative products, suggesting consumers continue to embrace the company's new artificial intelligence-based tools. are

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A closely watched metric of the new creative software business — digital media net new annual recurring revenue — will be $460 million in the current quarter, compared with an average estimate of $435.2 million.

The longtime leader in software for graphic arts professionals has faced a fresh wave of investor anxiety that creative AI will cut into its market. Application software peers such as Salesforce Inc., Workday Inc. and ServiceNow Inc. have faced similar concerns in recent weeks after reporting a drop in demand. The results signal that Adobe's efforts to add AI features to its products are gaining support among consumers as the company battles smaller rivals, including startups focused on emerging technologies.

Shares rose as much as 16.5% in early trading on Friday, the biggest intraday jump since March 2020. After a 77% gain in 2023, the stock was down 23% by Thursday's close.

Chief Financial Officer Dan Dern said in a conference call after the release of quarterly results that Adobe expects new creative business to pick up in the remainder of the fiscal year.

The company also raised its fiscal year profit forecast to $18.20 per share, excluding certain items, compared to the previous outlook of $18 per share. Analysts on average estimated $18.02.

Adobe's proprietary AI model, Firefly, has been integrated into products like Photoshop and Illustrator, while the company is working on developing similar technology for its video editing software Premiere. Chief executive officer Shantanu Narayan said the model has been used to create more than 9 billion images.

Citigroup Inc. analyst Tyler Radke wrote in a note that the results and the response to sharing “are in positive contrast to the rest of the enterprise software.”

In the fiscal second quarter, sales rose 10 percent to $5.31 billion, Adobe said in a statement Thursday. Profit, excluding certain items, was $4.48 per share. Wall Street had estimated earnings of $4.40 per share on revenue of $5.29 billion. The company added that customers are renewing for more expensive plans, including more Firefly usage.

Narayan said on the call that new innovations are allowing Adobe to attract an “expanding universe of consumers.”

Whether Adobe can attract new student and non-professional users, who have flocked to rivals such as Canva Inc. in recent years, is a key point of concern for investors. Monthly active users of Express — Adobe's product for casual creators that works like Canva — more than doubled in the three months ended May 31 from the previous quarter, said David Wadhwani, Adobe's Oversee creative business.

Still, the company is in the early stages of monetizing AI products, executives said during the call. Adobe is “focused on turning the pipeline, interest and awareness of AI into monetization,” Narayan said.

The digital media unit, which includes Adobe's flagship creative and document processing software, reported an 11 percent increase in sales to $3.91 billion in the period ended May 31. .

Particular strength was reported in Adobe's document cloud business. The unit added $165 million in new annual recurring business in the quarter, compared with the $122.7 million expected by analysts. Narain said during the earnings call that this was driven by users opting for a new AI-assistant feature, which helps analyze and understand PDFs and other documents.

The strong outlook should allay investor concerns about other generative AI tools holding back Adobe's growth prospects, Bloomberg Intelligence analyst Anurag Rana wrote.

– With help from Subrat Patnaik.

(Update of share prices in fourth paragraph.)

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