Technology

Adobe set for biggest gain since 2020 after AI sales success


ADOBE shares are set for their biggest gain in about four years after projecting strong future sales for its creative products, suggesting customers are adopting the company’s new artificial intelligence-based tools.

A closely watched metric of new creative software business – digital media net new annual recurring revenue – will be US$460 million in the current quarter, compared with the average estimate of US$435.2 million.

The long-time leader in software for graphic arts professionals has faced a fresh wave of investor anxiety that generative AI will cut into its market. Application software peers like Salesforce, Workday and ServiceNow have confronted similar concerns in recent weeks after reporting slowing demand. The results signal that Adobe’s efforts to incorporate AI features into its products are gaining support among customers as the company battles smaller rivals, including startups focused on the emerging technology.

The shares rose about 15 per cent in premarket trading on Friday (Jun 14) before New York exchanges opened after closing at US$458.74. If those gains hold, it will be the biggest intraday jump since March 2020. After rising 77 per cent in 2023, the stock has dipped 23 per cent since the start of the year.

Adobe expects an acceleration in new creative business through the rest of the fiscal year, chief financial officer Dan Durn said in a conference call after the quarterly results were released. 

The company also raised its fiscal-year profit forecast to as much as US$18.20 a share, excluding some items, compared with a previous outlook of US$18 a share. Analysts, on average, estimated US$18.02.

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Adobe’s proprietary AI model, Firefly, has been integrated into products such as Photoshop and Illustrator while the company is working on developing similar technology for its video-editing software, Premiere. The model has been used to generate over nine billion images, chief executive officer Shantanu Narayen said.

The results and share reaction are a “positive contrast to the rest of enterprise software”, Tyler Radke, an analyst at Citigroup, wrote in a note.

In the fiscal second quarter, sales increased 10 per cent to US$5.31 billion, Adobe said Thursday in a statement. Profit, excluding some items, was US$4.48 a share. Wall Street projected earnings of US$4.40 a share on revenue of US$5.29 billion. Customers are renewing to more expensive plans including greater use of Firefly, the company added.

New innovations are allowing Adobe to attract an “expanding universe of users”, Narayen said on the call. 

Whether Adobe can lure new students and non-professional users, who have flocked to rivals like Canva in recent years, has been a key point of concern for investors. Monthly active users of Express – Adobe’s product for casual creators that works similarly to Canva – more than doubled in the three months ended May 31 compared with the previous quarter, said David Wadhwani, who oversees Adobe’s creative business.

Still, the company is in the early stages of making money from AI products, executives said during the call. Adobe is focused on “converting the pipeline, interest and awareness of AI into monetization,” Narayen said.

The digital media unit, which includes Adobe’s flagship creative and document-processing software, posted an 11 per cent increase in sales to US$3.91 billion, in the period ended May 31. Revenue from the unit that includes marketing and analytics software rose 9 per cent to US$1.33 billion.

Particular strength was reported in Adobe’s document cloud business. That unit added US$165 million of new annually recurring business in the quarter, compared with the US$122.7 million expected by analysts. This was driven by users opting for a new AI-assistant feature, which helps analyse and understand PDFs and other documents, Narayen said during the earnings call.

The strong outlook should allay investor concerns about other generative AI tools detracting from Adobe’s growth prospects, wrote Anurag Rana, an analyst at Bloomberg Intelligence. BLOOMBERG



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