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Adobe stock has taken off as the company has shown how it can benefit from artificial intelligence.
Justin Sullivan/Getty Images
Adobe
posted better-than-expected financial results for its latest quarter and boosted its outlook for the full fiscal year, extending a rally which had already driven up the stock price 42% since mid-May.
The ongoing rally reflects growing investor confidence that generative AI will boost Adobe’s growth, rather than posing a new competitive threat to the content creation and marketing software giant.
In announcing the results, Adobe (ticker: ADBE) CEO Shantanu Narayen said that the company’s “ground-breaking innovation” positions the company to “lead the new era of generative AI.”
Adobe shares, which rallied 2.4% in regular trading, tacked on another 3.5% gain in the after-hours session.
For the quarter ended June 2, Adobe posted revenue of $4.82 billion, up 10%, and ahead of both the company’s guidance range of $4.75 billion to $4.78 billion and the Wall Street consensus of $4.77 billion.
Adjusted profits of $3.91 a share also topped the guidance range of $3.75 to $3.80 a share, and the Street consensus of $3.79 a share. Under generally accepted accounting principles, the company earned $2.82 a share, topping its target range of $2.65 to $2.70 a share.
Adobe said net new digital media annualized recurring revenue—a closely watched measure of the health of the company’s subscription-based software business—was $470 million, well ahead of the Street consensus of $422 million.
Adobe said its digital media segment had revenue of $3.51 billion, up 10%, or 14% adjusted for currency, above the Street at $3.46 billion. Digital experience segment revenue was $1.22 billion, up 12%, or 14% adjusted for currency, and inline with expectations.
For the fiscal third quarter, Adobe sees revenue of $4.83 billon to $4.87 billion. At the middle of the range, that’s a hair below consensus of $4.86 billion. It sees adjusted profits of $3.95 to $4 a share, above the Street forecast of $3.88. Adobe projects digital media net new ARR of $410 million, $2 million above the consensus.
Adobe sees full year revenue of $19.25 billion to $19.35 billion. At the midpoint, that’s right line with the Street consensus. But company lifted its non-GAAP profits forecast for the year to between $15.65 and $15.75 a share, up from a previous forecast of $15.30 to $15.60 a share, and ahead of the Street at $15.50 a share.
In March, a week after its latest earnings report, Adobe announced the launch of Firefly, a “generative AI co-pilot” that will leverage the company’s suite of content-creation tools. It launched a website to give people a chance to try the tools, including text-to-imaging software that is similar to DALL-e, which is offered by OpenAI, creator of ChatGPT.
Adobe has also unveiled new generative AI features for Photoshop, the company’s popular photo-editing product. And earlier in June, Adobe announced plans to offer a commercial version of Firefly and to charge for it.
That news sparked a new leg in Adobe’s recent rally.
Meanwhile, Adobe has vowed to aggressively defend its pending $20 billion deal for Figma, which is facing scrutiny from regulators in the European Union and the U.K. Earlier this year, there were reports the Department of Justice intends to file suit to block the deal.
Jefferies analyst Brent Thill wrote in a research note previewing the latest quarter that the focus would be on the company’s comments on AI and Figma.
Thill said that while investors are skeptical the Figma deal will close, the company is likely to ratchet up stock buybacks if there is no transaction. And he noted that while there is still some debate on the Street about whether AI will help or hurt Adobe, the consensus has shifted to a positive view.
Write to Eric J. Savitz at eric.savitz@barrons.com
