Adobe's AI Monetization Struggles: Q4 Earnings Beat, but Soft Guidance Disappoints Investors
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Why Analysts Can't Quit Adobe Even After Disappointing Revenue Guidance
Adobe (ADBE) shares dropped Thursday after the company's results the day before came with an underwhelming revenue outlook, but analysts still have largely bullish, if tempered, expectations for artificial intelligence (AI) monetization by the company. The Creative Cloud company "has been a frustrating stock for much of FY24," Mizuho Americas analysts said in a note Thursday. The firm maintained its "outperform" rating but lowered its price target to $620 from $640. Adobe stock fell more than 13% shortly after the opening bell, and recently traded at $480.37, off 12.6%. The stock has dropped nearly 20% in 2024. Despite the lower price target, the Mizuho analysts "remain confident ADBE will significantly monetize its Generative AI innovations going forward," they wrote. Adobe Digital Media President David Wadhwani said the company plans to introduce a more expensive version of its Firefly generative AI toolset, according to an earnings call transcript provided by AlphaSense. The offering is meant to "monetize new users" and increase average revenue per user, Wadhwani said. Bank of America (BofA) analysts on Thursday lowered their Adobe price target to $605 from $640 but similarly maintained their "buy" rating. The BofA analysts described the most recent quarter as ending "a year of delayed gratification for AI," although they said they've seen "some encouraging leading indicators for reacceleration as we head into next year."
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Adobe: BMO cuts target price on underwhelming guidance By Investing.com
Investing.com-- BMO cut its target price on Adobe (NASDAQ:ADBE) after the software giant clocked a slew of disappointing quarterly metrics, and also presented a weaker-than-expected outlook for 2025. BMO cut Adobe's TP to $570 from $600 while maintaining its Outperform rating on the stock. The brokerage noted that Adobe's annual recurring revenue (ARR)- a key metric for software as a service firms- beat expectations by a smaller margin in the November quarter than seen earlier this year. BMO also said ARR growth for Adobe's Creative Cloud- at 2%- was lackluster, and also missed estimates for 5% growth in the November quarter. Most egregious was Adobe's revenue guidance for 2025, at $23.30 to $23.55 billion. The forecast missed street estimates of $23.78 billion, indicating that recent measures by Adobe to incorporate artificial intelligence into its offerings were taking longer than expected to generate returns. Still, the BMO noted resilience in Adobe's Document Cloud business, with a bulk of its increase in ARR being driven by the unit. But the brokerage also said that the trend, while encouraging for Document Cloud, was disappointing for investors, given that they preferred a more balanced upside. BMO said it was maintaining Adobe at Outperform based entirely on its valuation. The stock tumbled nearly 10% in aftermarket trade, and was down about 5% so far in 2024. Adobe ramped up its investments in AI amid increased competition from smaller players such as Stability AI and Midjourney, whose image generating software is expected to eat into Adobe's market share. But the company is still struggling to monetize its AI features, with revenue failing to pick up substantially despite the introduction of Adobe's own image and video generation features.
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Adobe Q4 Earnings: Revenue, EPS Beat On Strong Demand Related To AI, Shares Slide Following Soft Guidance - Adobe (NASDAQ:ADBE)
Adobe expects first-quarter revenue to be in the range of $5.63 billion to $5.68 billion versus estimates of $5.73 billion. Adobe Inc ADBE reported fourth-quarter financial results after the market close on Wednesday. Here's a look at the key metrics from the quarter. Q4 Earnings: Adobe reported fourth-quarter revenue of $5.61 billion, beating the consensus estimate of $5.54 billion. The company reported fourth-quarter adjusted earnings of $4.81 per share, beating analyst estimates of $4.66 per share. Adobe has now exceeded analyst estimates in eight consecutive quarters, according to earnings data from Benzinga Pro. Total revenue was up 11% year-over-year, digital media revenue was up 12% year-over-year and digital experience revenue was up 10% year-over-year. Remaining performance obligations came in at $19.96 billion, up 16% year-over-year. Cash flows from operations totaled $2.92 billion in the fourth quarter. Adobe noted that it repurchased approximately 4.6 million shares during the period. "Adobe delivered record FY24 revenue, demonstrating strong demand and the mission-critical role Creative Cloud, Document Cloud and Experience Cloud play in fueling the AI economy," said Shantanu Narayen, chair and CEO of Adobe. "Our highly differentiated technology platforms, rapid pace of innovation, diversified go-to-market and the integration of our clouds position us for a great year ahead." Related Link: Costco Q1 Earnings Preview: Membership Fee Increase In Focus With Shares At All-Time Highs Guidance: Adobe expects first-quarter revenue to be in the range of $5.63 billion to $5.68 billion versus estimates of $5.73 billion. The company anticipates first-quarter adjusted earnings of $4.95 to $5 per share versus estimates of $4.95 per share. Adobe expects full-year 2025 revenue to be between $23.3 billion and $23.55 billion versus estimates of $23.79 billion. Adobe sees full-year adjusted earnings in the range of $20.20 to $20.50 per share versus estimates of $20.55 per share, according to Benzinga Pro. Adobe shares appear to be facing selling pressure due to the company's soft guidance. Management will further discuss the quarter on a call with analysts and investors from 5 p.m. to 6 p.m. ET. ADBE Price Action: Adobe shares were down approximately 7.5% year-to-date heading into the print. At the time of publication Wednesday, the stock was down 7.63% at $507.99 in after-hours, according to Benzinga Pro. Read Next: Alphabet's Quantum Willow Chip Wows Analyst: Google At The 'Leading Edge Of Technology Innovation' Photo: Shutterstock. ADBEAdobe Inc$514.60-5.93%Overview Rating:Speculative50%Technicals Analysis660100Financials Analysis400100WatchlistOverviewMarket News and Data brought to you by Benzinga APIs
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Adobe's Q4 earnings surpassed expectations, but its underwhelming revenue guidance for 2025 has led to a significant drop in stock price. Analysts remain cautiously optimistic about the company's AI monetization potential.
Adobe's Q4 Performance and AI Integration
Adobe Inc. (ADBE) reported strong fourth-quarter results, with revenue of $5.61 billion and adjusted earnings of $4.81 per share, both surpassing analyst estimates
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. The company's total revenue increased by 11% year-over-year, with digital media revenue up 12% and digital experience revenue up 10%3
. Despite these positive results, Adobe's stock faced significant pressure, dropping more than 13% shortly after the market opened1
.Disappointing Revenue Guidance
The primary cause for concern among investors was Adobe's underwhelming revenue guidance for fiscal year 2025. The company projected revenue between $23.3 billion and $23.55 billion, falling short of the $23.78 billion street estimate
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. This forecast suggests that Adobe's recent efforts to incorporate artificial intelligence (AI) into its offerings may be taking longer than expected to generate returns2
.Analyst Reactions and Price Target Adjustments
Despite the disappointing guidance, many analysts maintain a cautiously optimistic outlook on Adobe:
- Mizuho Americas maintained an "outperform" rating but lowered its price target to $620 from $640
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. - Bank of America (BofA) lowered its price target to $605 from $640 while maintaining a "buy" rating
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. - BMO cut its target price to $570 from $600 but maintained an "Outperform" rating
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Analysts remain confident in Adobe's potential to monetize its AI innovations, with Mizuho stating they "remain confident ADBE will significantly monetize its Generative AI innovations going forward"
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.AI Monetization Efforts and Challenges
Adobe has been investing heavily in AI to compete with emerging players like Stability AI and Midjourney
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. The company plans to introduce a more expensive version of its Firefly generative AI toolset to "monetize new users" and increase average revenue per user, according to Adobe Digital Media President David Wadhwani1
.However, the company is still struggling to fully monetize its AI features, with revenue not picking up substantially despite the introduction of Adobe's own image and video generation capabilities
2
. BofA analysts described the most recent quarter as ending "a year of delayed gratification for AI"1
.Related Stories
Business Segment Performance
While Adobe's overall performance was strong, there were some areas of concern:
- Annual Recurring Revenue (ARR) growth for Adobe's Creative Cloud was only 2%, missing estimates of 5% growth
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. - The Document Cloud business showed resilience, driving a significant portion of the ARR increase
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Looking Ahead
As Adobe continues to navigate the challenges of AI integration and monetization, investors and analysts will be closely watching the company's progress in the coming year. The company's ability to leverage its AI investments and maintain its competitive edge in the face of emerging competitors will be crucial for its future growth and market position.
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