Adobe shares closed down 14% following the company’s quarterly earnings report as investors fretted over lingering growth concerns and the software maker’s artificial intelligence monetization strategy. The sell-off came despite better-than-expected results, which included adjusted earnings of $5.08 per share and $5.71 billion in revenue. That surpassed analysts’ estimates of $4.97 in earnings per share and $5.66 billion in revenue, according to LSEG.
Total revenue increased 10% year over year in the quarter that ended on Feb. 28, according to a statement. Net income of $1.81 billion, or $4.14 per share, was up from $620 million, or $1.36 per share, in the same quarter a year earlier. Adobe’s annualized recurring revenue from AI contributed $125 million during the period, and Adobe expects that to double by the end of the fiscal year.
Adobe called for $4.95 to $5.00 in adjusted earnings per share for the current quarter on $5.77 billion to $5.82 billion in revenue. Analysts polled by LSEG had expected $5.00 per share on $5.80 billion in revenue.
CEO Shantanu Narayen’s Statement
“Not only are we infusing AI in our existing products and delivering value, but it’s clear that the innovation that we’ve delivered is creating new revenue streams,” said Adobe CEO Shantanu Narayen.
Bernstein’s Mark Moerdler, who recommends buying on the stock, wrote in a report that to “believe that ADBE is an AI winner and that AI is not replacing existing revenue streams, investors need to be able to observe longer-term trends.” Keith Weiss, an analyst at Morgan Stanley, wrote that “new disclosure of GenAI contribution is a step in the right direction,” but that investors need to see a “clearer roadmap” at the company’s investor meeting at its annual conference next week. Morgan Stanley has the equivalent of a buy rating on the stock.
Author’s Opinon
While Adobe’s financial performance is undeniably strong, the company faces a tough road ahead in proving its long-term strategy with AI. Investors want more clarity on how AI will integrate with existing products and drive new revenue streams. Adobe’s current AI contribution is promising but still lacks a clear, detailed plan, and without more concrete actions, it could risk losing investor confidence
