Adobe has set its sights on fiscal 2025 (FY25) with a revenue projection of $23.3bn to $23.55bn. This forecast has not only fallen short of market expectations, but it has also raised questions about the company’s ability to capitalise on its AI investments. Adobe’s outlook, coupled with challenges in monetising AI-driven innovations, has amplified investor scrutiny as the Photoshop maker navigates an increasingly competitive landscape.
Shares of the San Jose-based software giant dropped nearly 8% in 2024, starkly underperforming the software sector, which has surged over 30% this year. Its shares fell nearly 9% in extended trading following the announcement of its latest earnings forecast. The disappointing prediction, which includes an anticipated $200m hit from foreign exchange volatility and a shift to subscription-based models, has triggered further concerns about Adobe’s growth trajectory.
Over the past year, Adobe has accelerated its push into generative AI, integrating its proprietary Firefly technology into flagship tools like Photoshop and Illustrator. These innovations, which enable users to generate images and videos from text prompts, have driven customer engagement, with Firefly-powered creations surpassing 16 billion. However, the rollout of its AI-driven video tools has been slower than anticipated, trailing competitors like OpenAI’s Sora platform.
Adobe’s strategy has focused on embedding AI capabilities to enhance user experiences rather than directly monetising these tools — a move that appears to be testing investor patience. The Digital Media segment, a key revenue driver that includes Creative Cloud subscriptions, reported a modest 2% year-over-year (YoY) increase in net new annualised recurring revenue (ARR) in the fourth quarter (Q4). This sluggish growth highlights ongoing challenges in converting AI innovations into meaningful financial gains.
Q4 FY24 financial performance
For fiscal 2024 (FY24), Adobe achieved record revenue of $21.51bn, an 11% YoY increase. The Document Cloud segment emerged as a standout performer, posting a 17% revenue rise to $843m in Q4 FY24. Yet, the Creative Cloud division, which houses many of Adobe’s AI tools, has faced slower-than-expected growth, further intensifying concerns about the company’s ability to sustain its momentum.
Despite these challenges, Adobe has maintained strong operational metrics, including $2.92bn in Q4 operating cash flow and a record $19.96bn in remaining performance obligations. However, the fiscal 2025 guidance suggests a deceleration in growth, raising questions about potential market share erosion or pricing pressures in an increasingly competitive field.
The company also achieved revenue of $5.61bn in Q4 FY24, marking an 11% YoY growth in both reported and constant currency terms. Diluted earnings per share stood at $3.79 on a GAAP basis and $4.81 on a non-GAAP basis. Net income was reported at $1.68bn on a GAAP basis and $2.13bn on a non-GAAP basis.
“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 Adobe chair and CEO Shantanu Narayen. “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.”
Adobe’s valuation, trading at less than 27 times estimated earnings, remains below its 10-year average and offers room for potential upside if the company can deliver on its AI ambitions. Analysts note that Adobe’s ability to translate its technological leadership into sustainable growth will be crucial in regaining investor confidence.
For Q1 FY25, Adobe expects its total revenue in the range of $5.63bn to $5.68bn. Digital Media segment revenue is projected to reach between $4.17bn and $4.2bn while Digital Experience segment revenue is forecasted at $1.38bn to $1.4bn. Within the Digital Experience segment, subscription revenue is anticipated to range from $1.27bn to $1.29bn. As the company advances into 2025, Adobe faces mounting pressure to demonstrate that its AI integration efforts can drive tangible financial returns.
Read more: Adobe stock slips on bleak fourth-quarter outlook
