(Bloomberg) — Adobe Inc. fell 14% on Friday as a weak revenue outlook for the current quarter raised concerns that new AI startups pose a competitive threat.
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The company said in a statement Thursday that it expects sales for the current fiscal year to be between $5.25 billion and $5.3 billion. Analysts had expected an average of $5.31 billion, according to data compiled by Bloomberg. Earnings, excluding certain items, are expected to be up to $4.40 per share, compared with analysts’ average estimate of $4.38.
The company, which has long been a leader in software for creative arts professionals, faces fears that new generative AI-based startups will enter its market. Adobe countered this by incorporating its own AI model, his Firefly, into its top products such as Photoshop and Illustrator. Still, the recent demonstration of OpenAI’s video generation model Sora has reignited investor concerns about competition.
“Expectations were probably a little bit higher in terms of what we were going to lead,” CEO Shantanu Narayan said on a post-earnings conference call. “But you know I’m very optimistic about what we’ve done so far,” he said of the company’s AI efforts.
Read more: Inside Adobe’s very deliberate strategy to bring AI into everything
Adobe expects new recurring creative business to be $440 million this quarter, lower than analysts’ expectations of $459 million. Stifel analyst Parker Lane said in an interview on Bloomberg TV that the company likely disappointed investors who were hoping for big financial gains from the new AI capabilities. “Investors have heard a lot of great things from the company on the AI front, including increased adoption, and are just waiting for that to be reflected in the fundamentals.”
The stock closed at $492.46 in New York, its worst trading day since September 15, 2022. After soaring 77% in 2023, the stock has fallen 17% since the beginning of the year. Morgan Stanley analyst Keith Weiss said ahead of the earnings call that the weak performance was due to concerns about competition from both generative startups like OpenAI and long-time rivals like Canva Inc. It is written that it is due to
Fiscal first quarter sales increased 11% to $5.18 billion. Earnings, excluding certain items, were $4.48 per share. Wall Street had expected revenue of $5.14 billion and adjusted earnings per share of $4.38.
Adobe’s digital media division, which includes its flagship creative and word processing software, posted revenue of $3.82 billion in the year ended March 1, a 12% increase. Sales in the division, which includes marketing and analytics software, rose 10% to $1.29 billion.
The company has already begun monetizing its new AI capabilities and plans to ramp up those efforts in the second half of this year, executives said on a post-earnings conference call. According to Executive Vice President David Wadhwani, Firefly has been used to generate more than 6.5 billion pieces of media for him.
Narayan said new innovations in video generation AI will accelerate demand for Adobe’s existing editing tools, as creators need to work with videos. “The idea that the next Oppenheimer will be done using text-to-video prompts won’t happen for decades,” he added.
Wadhwani said Adobe will introduce more video features in the coming months.
The company announced a new $25 billion stock repurchase program. Adobe’s previous $15 billion stock buyback plan was scheduled to expire at the end of fiscal year 2024.
Adobe announced in December that it was abandoning a planned merger with product design startup Figma due to regulatory pressure, a move that would have freed up billions of dollars in cash. The company may also end efforts to develop products comparable to Figma in-house and instead explore product categories through partnerships.
(Updates share. A previous version of this article corrected the date in the headline)
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