Adobe (ADBE) stock fell nearly 14% on Thursday after its weak outlook fueled investor concerns that the company’s AI tools are not paying off quickly enough to stave off growing competition from other manufacturers generative AI software.
In its earnings announcement Wednesday, Adobe said it expected revenue of between $23.3 billion and $23.6 billion and adjusted earnings per share of between $20.20 and $20.50 for the fiscal 2025. Wall Street analysts expected the company to forecast annual revenue of $23.8 billion and adjusted EPS of $20.52, according to Bloomberg data.
Adobe presented 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 later Google launched a similar model. Adobe’s tool also arrives much later than versions from startups such as Stability AIHalfway and Track. And the competition is intensifying: ChatGPT creator OpenAI has revealed its video text-generating bot, Sora. just this week.
These competitive pressures and concerns about the monetization of the company’s AI tools have caused Adobe shares to fall about 20% this year.
According to Wall Street analysts, Adobe management has failed to clearly communicate its tool monetization strategy.
“Investors are struggling to reconcile the company’s bullish comments on AI with lackluster results and growth forecasts,” Bernstein analyst Mark Moerdler wrote in a note to investors Thursday. He lowered his price target on Adobe stock from $644 to $587 while maintaining his outperform rating.
Adobe’s decision to stop providing quarterly guidance for a key metric within its Digital Media segment, which includes its Creative Cloud and Document Cloud products, added to investor concerns.
“Given management’s poor communication, exacerbated by the lack of quarterly DM NNARR (annualized net new recurring revenue) guidance, investors will want to see improving numbers before having confidence in Adobe’s ability to benefit of 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 positioned to pull the levers of monetization in 2025 with new subscription tiers and add-ons (for Firefly),” Weiss added. He maintained his price target of $660 and his overweight on the stock.
William Blair analyst Jake Roberge wrote in his own note to investors Thursday morning: “Although short-term, we expect these forecasts will likely put an overhang on the stock as investors wonder whether the shortfall pricing/growth is favorable for the company’s new GenAI solutions. is due to competitive/market pressure and Adobe playing the long game by driving high-level activity for its new AI solutions, we remain positive about the long-term trajectory of the company and believe Adobe remains well positioned to capitalize on the GenAI opportunity.