Adobe's fiscal 2025 sales forecast fell short of market expectations, causing its shares to plunge nearly 9% in extended trading. The market is worried that Adobe may lose market share in the increasingly fierce AI competition. While Adobe has integrated generative AI capabilities into its creative software, such as Firefly, and plans to launch a higher-priced Firefly product line, investor reaction to the new AI tools has been lukewarm, contrary to positive responses from Adobe executives and customers. The evaluation is in contrast. Although fourth-quarter results slightly beat expectations, lower-than-expected sales expectations and investor concerns about AI competition combined to cause Adobe's stock price to fall.
Shares of U.S. software company Adobe Inc. tumbled in extended trading after the company posted disappointing annual sales forecasts. The news sparked concerns that Adobe could lose market share in the increasingly competitive field of artificial intelligence. According to Adobe's statement, the company is expected to have annual revenue of $23.4 billion by November 2025, compared with analysts' average estimate of $23.8 billion.
Adobe, a company best known for its creative software, has been adding generative artificial intelligence (AI) capabilities to its products in recent years. For example, the company has embedded its self-developed AI model Firefly in applications such as Photoshop. In addition, Adobe launched an AI tool for video creation at its annual user conference and is gradually rolling it out to the public and integrating it into the editing application Premiere.
Adobe also plans to launch a "new high-priced Firefly product" that includes video mockups, David Wadhwani, who oversees the company's creative operations, said on a conference call after the earnings release. Annual new recurring revenue from digital media, a closely watched metric of the company, is expected to grow 11% during the fiscal year, an increase in line with market expectations. Chief Financial Officer Dan Durn mentioned on the call that the guidance considers a strategy to "continue to launch new tiered subscription products and additional services."
However, Adobe's outlook looks a bit conservative because "there is still uncertainty about the pace of adoption of AI use," said Bloomberg Intelligence analyst Anurag Rana. Adobe's shares fell almost 9% to close at $549.93 in New York. The stock has fallen 7.8% this year, lagging software industry peers and the overall market. Investors have expressed concerns that AI creative tools launched by companies such as OpenAI and Runway AI may seize Adobe's market share.
While company executives and customers alike have praised Adobe's new AI tools, Morgan Stanley analyst Keith Weiss noted on the call that "investors are not feeling the excitement." In its fiscal fourth quarter, Adobe reported sales growth of 11% to $5.61 billion. Profit, excluding certain items, was $4.81 per share, beating analysts' expectations of $4.67 per share, and revenue was slightly ahead of estimates of $554 million. The company ended the quarter with annual recurring digital media revenue of $17.3 billion, slightly beating the average analyst estimate.
Highlights:
? Adobe expects annual revenue in 2025 to be $23.4 billion, below analysts’ expectations of $23.8 billion.
? The company added generative AI capabilities to its products, but investor response to the new AI tools was muted.
? Shares fell nearly 9% in extended trading as investors expressed concern about intensifying competition from AI.
All in all, Adobe's share price decline reflects concerns about its future growth potential and its position in the AI competition. Although the company has invested in the field of AI, investors remain cautious about the success of its AI strategy. In the future, Adobe will need to further prove the effectiveness of its AI strategy to regain investor confidence.