Adobe’s shares fell more than 9% after the US-based software company published a weaker-than-expected outlook for the fourth quarter of fiscal year 2024. The design software giant said that it estimated Q4 revenues to be between $5.5bn and $5.55bn, after considering current macroeconomic conditions and year-end seasonal strength. Analysts polled by LSEG had predicted $5.61bn revenue for the same three-month period.
Adobe recorded an 11% year-over-year (Y-o-Y) growth in its third quarter revenue of fiscal year 2024 that ended on 30 August 2024. That figure was $5.41bn, beating LSEG estimates of $5.37bn. Digital Media segment revenue also grew by 11% Y-o-Y to $4bn, while Document Cloud revenue jumped 18% Y-o-Y to $807m.
“Adobe’s record Q3 performance is a testament to our relentless innovation and commitment to delivering value to our customers,” Adobe’s chair and CEO, Shantanu Narayen, confidently pronounced. “With groundbreaking advancements in AI across Creative Cloud, Document Cloud and Experience Cloud, we are empowering millions of users worldwide.”
Adobe’s big bet on AI yielding soft returns
Adobe’s reported its net new Digital Media Annualized Recurring Revenue (ARR) as $504m, with Document Cloud ARR and Creative ARR growing to $3.31bn and $13.45bn, respectively. Its ‘Digital Experience’ segment quarterly revenue, meanwhile, grew 10% Y-o-Y to $1.35bn, while ‘Digital Experience’ subscription revenue soared 12% Y-o-Y to $1.23bn.
Operating income in Q3 FY24 totalled $1.99bn, compared to $1.7bn in the same period a year ago. Gross profit in the three-month period was $4.85bn, while net quarterly income rose from $1.4bn to $1.68bn on a Y-o-Y basis.
Alongside its financial results for the last quarter, Adobe also took the opportunity to preview some of its latest generative AI tools. This included a preview of its Firefly platform’s text-to-video and image-to-video capabilities. As Adobe’s vice-president for generative AI Alexandru Costin told The Verge, however, these features only produce content that can run a maximum of five seconds.
The preview follows several AI-related announcements Adobe has made over the past 12 months, as the design giant fights to harness what it sees as burgeoning public demand for generative AI capabilities in software packages. This included the release of a new generative AI tool in its Acrobat and Reader platforms in February to support drafting PDFs and other documents. Adobe also snapped up the Indian generative AI startup Rephrase.ai in November 2023, which specialises in the creation of “hyper-personalized” marketing video content for businesses.
It remains to be seen whether market enthusiasm for generative AI will continue to buoy future Adobe earnings. The company acknowledged that a dramatic shift in public attitudes toward the technology was one of the risks that could potentially impact future revenues. Analysts certainly expected better from the firm in the near future if the design giant wanted to maintain its current share price. “Adobe,” Third Bridge’s Charlie Miner told Silicon Angle, “will need perfect execution on the creative tools and AI fronts to drive the growth necessary to justify its premium price point.”
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