Weak performance guidance, AI driving force gone? "AI star" Adobe plunges after hours

Adobe, the leading AI application company, released a lackluster earnings report for the fourth quarter. Although the company's performance slightly exceeded expectations for the quarter, the full-year guidance fell short, indicating that the validation of AI application performance still requires more time.

According to the report, the company's adjusted earnings per share for the quarter were $4.27, higher than the expected value of $4.14, and revenue was $5.05 billion, slightly higher than analysts' expected $5.02 billion. Adobe expects its revenue to reach approximately $21.4 billion by the end of fiscal year 2024, lower than analysts' expected revenue of $21.7 billion; adjusted earnings per share are expected to be $18, in line with expectations.

The guidance provided by Adobe also shows that the annual recurring revenue of the Digital Media segment (including creative software such as Photoshop and Illustrator) for the 2024 fiscal year will reach $1.9 billion. The average analyst expectation is $2.02 billion.

As of the time of writing, Adobe's stock fell nearly 5% after hours. Prior to the release of this earnings report, Adobe's stock price had risen over 85%.

In a report following the release of the earnings report, Kirk Materne, an analyst at Evercore, stated that the revenue of the Digital Media segment is an important measure of annual subscription sales, and the poor prospects of this indicator are "obviously the reason for investor disappointment."

Wall Street analysts had previously predicted that Adobe would be one of the first software giants to benefit from the AI-generated technology boom. In recent months, Adobe announced the launch of a new AI model, Firefly, and also announced an increase in subscription prices for its products.

However, the disappointing guidance may indicate that Adobe's monetization of AI may not be as ideal as the market expected.

Nevertheless, Brent Thill, a senior analyst at Jefferies, believes that despite the lower-than-expected guidance, Adobe's prospects are still good.

He believes that Adobe's executives have been too conservative in their predictions for the future and that Adobe is "ahead of everyone" in terms of AI. Brent Thill called Adobe's AI application, Firefly, a product that is "crushing everything" and "changing the lives of creators."

Furthermore, it is worth noting that Adobe is known for its conservative guidance.

Thill stated in a media interview:

"Remember, Adobe doesn't really have any direct high-end competitors. They have Canva in the low-end market, but they don't really have any in the high-end market. So, I think, ultimately, this is just the result of conservative guidance. If you were the CFO of Adobe, you would do the same. You wouldn't give an aggressive guidance."Chief Financial Officer Dan Durn stated during the conference call:

"We have set our expectations cautiously, but we have the opportunity to do better."