Adobe experienced a significant drop of about 10% in extended trading following a less optimistic sales forecast for the current quarter, raising concerns about the competitive landscape posed by emerging artificial intelligence (AI) startups.
The company projected revenue ranging from US$5.25 billion to US$5.3 billion for the period, falling slightly short of analysts’ expectations averaging US$5.31 billion, as compiled by Bloomberg. Profit, excluding certain items, is anticipated to reach up to US$4.40 per share, slightly surpassing analysts’ average estimate of US$4.38 per share.
Despite Adobe’s long-standing dominance in software tailored for creative professionals, there’s growing apprehension that new AI-focused startups could encroach upon its market share. In response, Adobe has integrated its proprietary AI model, Firefly, into flagship products like Photoshop and Illustrator. However, recent demonstrations of competitive AI models, such as OpenAI‘s Sora, have reignited investor concerns about intensified competition.
Anticipating approximately US$440 million in new recurring creative business for the current quarter, Adobe’s projection falls below analysts’ expectations of around US$459 million. Analyst Parker Lane from Stifel noted that investors are eagerly awaiting stronger financial impacts from Adobe’s new AI features, despite positive feedback on increased adoption. The discrepancy between expectations and actual figures likely disappointed investors.
Following the announcement, Adobe shares plummeted to a low of US$506.11 in extended trading, compared to the New York closing price of US$570.45. Despite a 77% surge in 2023, the stock has declined by 4.4% since the beginning of the year, primarily due to concerns regarding competition from both emerging AI startups like OpenAI and longstanding rivals like Canva, as highlighted by Morgan Stanley analyst Keith Weiss prior to the earnings release.
In the fiscal first quarter, Adobe reported an 11% increase in sales to US$5.18 billion, with adjusted earnings of US$4.48 per share, surpassing Wall Street’s revenue expectations of US$5.14 billion and adjusted earnings of US$4.38 per share.