Shares of Adobe ( ADBE ) fell as much as 13% early Thursday after a weak outlook fueled 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 fiscal 2025 revenue of between $23.3 billion and $23.6 billion and adjusted earnings per share of between $20.20 and $20.50. Wall Street analysts had expected the company to forecast annual revenue of $23.8 billion and adjusted earnings per share 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 this week unveiled its text-to-video generation bot Sora.
These competitive pressures and concerns about monetizing the company’s AI tools have caused Adobe’s shares to fall about 20% this year.
According to Wall Street analysts, Adobe management has failed to clearly communicate the path to monetization of the tools.
“[I]Investors are finding it difficult to reconcile [the] the company’s bullish AI commentary with soft results and growth guidance,” Bernstein analyst Mark Moerdler wrote in a note to investors Thursday, lowering 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 the Digital Media segment, which consists of the Creative Cloud and Document Cloud products.
“Considering poor management communication, compounded by lack of quarterly DM NNARR [net new annualized recurring revenue] Under the guidance, investors will want to see improvement in the numbers before gaining confidence in Adobe’s ability to capitalize on GenAI, which may require more patience,” Morgan Stanley analyst Keith Weiss wrote in a note to investors Thursday morning.
“The good news is that Adobe appears better poised to pull the monetization levers in 2025 with new subscription tiers and add-ons [for Firefly]Weiss added. He maintained his $660 price target and his Overweight rating on the stock.
William Blair analyst Jake Roberge wrote in his own note to investors early Thursday: “While we expect this guidance is likely to create an overhang on the stock in the near term as investors consider whether the lack of pricing/growth the wind from the company’s new GenAI solutions. is due to competitive/market pressure, while Adobe is playing the long game in driving top-of-funnel activity for its new AI solutions, we remain positive on the company’s long-term trajectory and believe that Adobe remains well positioned to capitalize on the GenAI opportunity.”
