Adobe Earnings Beat Estimates as AI Demand Grows. The Stock Is Falling.

Adobe stock rose after earnings beat estimates. (Justin Sullivan/Getty Images)

Key Points

About This Summary

• Adobe’s fiscal third-quarter adjusted earnings of $5.31 a share on revenue of $5.99 billion exceed analysts’ estimates.
• The company’s digital media annualized recurring revenue grows 11.7% from last year, with AI-influenced ARR surpassing $5 billion.
• Adobe raises its fiscal-year adjusted earnings guidance to $20.80-$20.85 a share and revenue to $23.65 billion to $23.7 billion.

Adobe ticked lower Friday after the creative-software company reported better-than-expected quarterly earnings and revenue.

Adobe reported fiscal third-quarter adjusted earnings of $5.31 a share on revenue of $5.99 billion. Analysts surveyed by FactSet were expecting earnings of $5.18 a share on revenue of $5.92 billion.

Digital media annualized recurring revenue in the quarter of $18.59 billion beat Wall Street estimates of $18.55 billion, and grew 11.7% from last year. AI-influenced ARR surpassed $5 billion.

CEO Shantanu Narayen said in the earnings release that “given our customer strategy, AI product innovation and strong go-to-market execution, we’re pleased to once again raise our FY25 total revenue and EPS targets.”

Adobe now expects current fiscal-year adjusted earnings to be between $20.80 a share to $20.85 a share, compared to prior guidance of $20.50 a share to $20.70 a share. Revenue for the year is now estimated to be between $23.65 billion to $23.70 billion, compared to previous forecasts of $23.50 billion to $23.60 billion.

Shares were falling 2.1% to $343.56 on Friday, having climbed in after-hours trading Thursday evening.

Adobe stock has dropped nearly 23% this year, as investors worry about the competition the company faces when it comes to generative artificial intelligence creative software. Companies like OpenAI and Canva offer their own AI image and design creations.

Investors have also been looking to see proof that Adobe is making money from its AI offerings.

On Thursday, Adobe announced some key figures that could help show how it’s making money from enterprise customers from its AI products.

According to Adobe, 99% of Fortune 100 companies have used AI in an Adobe app, and over 40% of its top 50 enterprise accounts doubled their annualized recurring revenue spend since the start of fiscal year 2023.

“They are comfortable with us. They see us as a strategic partner. Our focus on being commercially safe, it’s very important to them to protect their own intellectual property. That’s what makes us the logical partner for them as they transform their marketing and customer experience,” Anil Chakravarthy, president of Adobe’s Digital Experience Business, told Barron’s.

The fast growth of Adobe’s AI-first products was the headline of the report, said Jackson Ader of KeyBanc Capital Markets, who maintained a Sector Weight rating with no price target on the stock.

Analysts at Mizuho Securities agreed. “We believe the breadth of ADBE’s AI monetization is being underappreciated by the Street,” Mizuho’s Gregg Moskowitz wrote in a research note. The firm reiterated an Outperform rating and a $460 price target.

Write to Angela Palumbo at angela.palumbo@dowjones.com