(Bloomberg) — Adobe stock rose by the most in more than four years after the company predicted strong future sales of its creative products and customers He hinted at the use of artificial intelligence-based tools.
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Digital media new annual recurring revenue, a closely watched metric for new creative software businesses, is expected to come in at $460 million in the current quarter, compared to the average estimate of $435.2 million.
The company, which has long been a leader in software for graphic arts professionals, is facing a new wave of investor fear that generative AI will eat into its market. Application software peers such as Salesforce Inc., Workday Inc. and ServiceNow Inc. have faced similar concerns in recent weeks after reporting slowing demand. The results show that Adobe’s efforts to build AI capabilities into its products are gaining support among customers as the company battles smaller rivals, including startups focused on emerging technologies. .
Shares rose as much as 16.5% after opening on Friday, marking their biggest intraday gain since March 2020. The stock was down 23% by Thursday’s close after rising 77% in 2023.
In a conference call following the quarterly results, Chief Financial Officer Dan Dern said Adobe expects new creative business to accelerate through the remainder of the fiscal year.
The company also raised its fiscal year earnings forecast, excluding certain items, to a maximum of $18.20 per share, up from its previous forecast of $18. Analysts’ average price estimate was $18.02.
Adobe’s proprietary AI model Firefly is integrated into products such as Photoshop and Illustrator, and the company is working on similar technology for its video editing software Premiere. CEO Shantanu Narayan said the model has been used to generate more than 9 billion images.
Citigroup analyst Tyler Radke wrote in a note that the results and share response “stands in stark contrast to other enterprise software.”
Revenue for the fiscal second quarter rose 10% to $5.31 billion, Adobe said in a statement Thursday. Earnings, excluding certain items, were $4.48 per share. Wall Street had expected earnings of $4.40 per share and revenue of $5.29 billion. Customers are updating to more expensive plans, including increasing their Firefly usage, the company added.
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Narayan said on the conference call that new innovations have enabled Adobe to attract an “expanding universe of users.”
A key concern for investors is whether Adobe can attract new and non-professional users who have flocked to rivals like Canva Inc. in recent years. The number of monthly active users of Express, Adobe’s product for casual creators that functions similarly to Canva, increased in the three months ended May 31 compared to the previous quarter, said David Wadhwani, head of Adobe’s creative business. It has more than doubled.
Still, the company is in the early stages of generating revenue from its AI products, executives said on the conference call. Adobe is focused on “monetizing pipeline, AI interest and awareness,” Narayan said.
Adobe’s digital media division, which includes its flagship creative and word processing software, saw revenue increase 11% to $3.91 billion in the year ended May 31. Sales in the division, which includes marketing and analytics software, rose 9% to $1.33 billion. .
Adobe’s document cloud business is reporting particularly strong results. The division added $165 million in new annual recurring business in the quarter, compared to analyst estimates of $122.7 million. This is due to users opting into new AI assistant features that help analyze and understand PDFs and other documents, Narayan said on the earnings call.
Bloomberg Intelligence analyst Anurag Rana said the strong outlook should allay investor concerns that other generative AI tools will hurt Adobe’s growth prospects.
–With assistance from Subrat Patnaik.
(Updates the stock price in the 4th paragraph.)
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