Adobe Inc. saw its shares tumble by 14% on Friday following a disappointing sales outlook for the current quarter, which raised concerns about new AI startups posing a competitive threat. The company stated that revenue for the period is expected to be between $5.25 billion and $5.3 billion, slightly lower than the average projection of $5.31 billion by analysts.
Furthermore, Adobe anticipates a profit of up to $4.40 per share, excluding certain items, compared to analysts’ average estimate of $4.38. The decline in shares reflects anxieties surrounding the impact of new generative AI-based startups on Adobe’s dominant position in the software sector for creative arts professionals.
In response to the perceived threat, Adobe has integrated its proprietary AI model, Firefly, into its flagship products like Photoshop and Illustrator. However, these efforts haven’t fully assuaged investors’ concerns. The recent demonstration by OpenAI of its powerful video-generation model, Sora, has reignited worries about competition.
While discussing the disappointing results, Adobe’s CEO Shantanu Narayen expressed optimism about the company’s AI initiatives, stating that he believes they have made significant progress. Nevertheless, investors are eagerly waiting for the financial impact of the new AI features to become more evident. Despite the decline in shares, Narayen remains confident in Adobe’s position and believes that new innovations in video-generating AI will drive demand for the company’s existing editing tools.
Adobe’s weak sales outlook for the current quarter has disappointed investors who were expecting greater financial impact from the integration of AI features. Analysts had anticipated $459 million in new recurring creative business, but Adobe expects it to be closer to $440 million.
This decline in shares marks the worst day for Adobe since September 15, 2022. The stock had previously experienced strong growth in 2023, increasing by 77%. However, it has since decreased by 17% since the beginning of this year due to concerns about competition from both generative startups like OpenAI and established rivals such as Canva Inc.
In the fiscal first quarter, Adobe recorded an 11% increase in sales, reaching $5.18 billion. Excluding certain items, the company’s profit amounted to $4.48 per share, surpassing Wall Street’s expectations. The digital media unit, which includes Adobe’s flagship creative and document-processing software, reported a 12% increase in sales, while revenue from the division that includes marketing and analytics software rose by 10%.
To address investor concerns and further monetize its AI features, Adobe has announced a new $25 billion share buyback program. This follows the company’s decision to abandon its planned merger with product design startup Figma Inc. and its efforts to develop a rival product internally due to regulatory pressure. Instead, Adobe is considering exploring the product category through partnerships.
Overall, Adobe remains committed to leveraging AI in its products and is expected to introduce more video features in the coming months. The company believes that new video-generating AI capabilities will drive demand for its existing editing tools, emphasizing that the transformation from text to video prompts will take decades to achieve.
FAQ
What is Adobe’s sales outlook for the current quarter?
Adobe projects revenue to be between $5.25 billion and $5.3 billion for the current quarter.
What impact are AI startups having on Adobe’s market?
New generative AI-based startups are viewed as a competitive threat to Adobe’s dominant position in the software sector for creative arts professionals.
How has Adobe responded to the competition from AI startups?
Adobe has integrated its proprietary AI model, Firefly, into its flagship products such as Photoshop and Illustrator.
Are investors satisfied with the financial impact of Adobe’s AI features?
Investors are eager to see greater financial impact from Adobe’s AI features and are waiting for it to reflect in the company’s fundamentals.
Why did Adobe’s shares decline?
The decline in shares can be attributed to concerns about competition from generative startups like OpenAI and longer-standing rivals like Canva Inc.
Does Adobe plan to introduce more video features?
Yes, Adobe is planning to showcase more video features in the coming months to capitalize on the demand generated by new video-generating AI capabilities.
Definitions:
– AI (Artificial Intelligence): refers to the simulation of human intelligence in machines that are programmed to think and learn like humans, enabling them to perform tasks such as speech recognition, visual perception, and decision-making.
– Generative AI: a branch of artificial intelligence that focuses on creating models capable of generating new and original content, such as images, videos, or text.
– Flagship products: refers to the main or most important products offered by a company, often representing its core business or strategic focus.
– Revenue: the total amount of money generated by a company or organization from its business activities, such as sales of goods or services.
– Profit: the financial gain made by a company after deducting expenses and taxes from its revenue.
– Recurring business: refers to revenue generated from ongoing or repeat transactions, such as subscription services or long-term contracts.
– Share buyback program: a corporate action in which a company repurchases its own shares from existing shareholders, usually with the aim of reducing the number of outstanding shares and increasing their value.
– Merger: a combination of two or more companies into a single entity, often for the purpose of achieving synergies, expanding market presence, or increasing competitiveness.
Related links:
– Adobe Official Website
– OpenAI Official Website
– Canva Official Website
– Figma Official Website
The source of the article is from the blog krama.net