(Bloomberg) — Adobe Inc. gave a lukewarm outlook for sales in 2024, disappointing investors who expected new generative artificial intelligence tools would quickly boost the software company’s results.
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Revenue will be about $21.4 billion in the fiscal year ending in December 2024, the company said Wednesday in a statement. Profit, excluding some items, will be as much as $18 a share. Analysts, on average, estimated sales of $21.7 billion and adjusted profit of $18 a share.
Wall Street expects Adobe to be one of the first software giants to benefit from the excitement over generative AI technology, which responds to prompts by producing unique text or images. In recent months, the company has announced a new version of its AI model, Firefly, raised prices, and focused its October user conference on the technology. The company cited “significant upsell of our new Firefly” with large customers, according to remarks prepared for a conference call after the results.
However, that enthusiasm was dashed by the annual outlook. Shares declined about 6% in extended trading after closing at $624.26 in New York. The stock had jumped 85% this year as “investors appear very comfortable with Adobe’s ability to monetize generative AI,” Keith Weiss, an analyst at Morgan Stanley, wrote ahead of the results.
New annual recurring revenue for Adobe’s digital media unit, which includes signature creative software such as Photoshop and Illustrator, will be $1.9 billion, the company said. That compares with an average analyst estimate of $2.02 billion. The miss in the outlook for the metric, which is a measure of annual subscription sales, “is clearly the disappointment” investors are reacting to, Kirk Materne, an analyst at Evercore, wrote in a note after the earnings were released.
The guidance “suggests the company could take longer than anticipated to realize meaningful contribution from its generative AI products,” wrote Bloomberg Intelligence analyst Anurag Rana.
Chief Executive Officer Shantanu Narayen responded on a conference call to a series of questions from analysts about the guidance. “There’s nothing we see on the horizon that would tell us — either from the economic or competition — that we’re not poised to have another great year,” Narayen said.
Several analysts said Adobe is known for giving a conservative annual outlook. “We set expectations in a prudent way — there’s an opportunity to do better,” Chief Financial Officer Dan Durn said during the call.
In the fiscal fourth quarter, sales increased 12% to $5.05 billion. Profit, excluding some items, was $4.27 a share.
The digital media unit posted sales that gained 13% to $3.72 billion in the period ended Dec. 1. Revenue from the unit that includes marketing and analytics software rose 10% to $1.27 billion.
Adobe announced more than a year ago that it planned to buy design software startup Figma Inc. The acquisition has been stalled by global regulatory reviews. Late last month, Adobe was working on remedy proposals to appease European regulators, while the US Justice Department was said to be preparing a lawsuit to block the deal.
The company said it “strongly disagrees” with the findings released by the UK’s competition regulator last month, and that it expects a decision soon from the Justice Department.
Read More: Adobe Says FTC Investigating Software Subscription Practices
Separately, Adobe disclosed in a filing that the US Federal Trade Commission has been investigating the company’s subscription cancellation practices for more than a year. Settling this matter “could involve significant monetary costs or penalties and could have a material impact on our financial results and operations,” Adobe said.
(Updates with comments from analysts beginning in the fifth paragraph.)
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Eugen Boglaru is an AI aficionado covering the fascinating and rapidly advancing field of Artificial Intelligence. From machine learning breakthroughs to ethical considerations, Eugen provides readers with a deep dive into the world of AI, demystifying complex concepts and exploring the transformative impact of intelligent technologies.
