Despite sustained momentum surrounding artificial intelligence, and Adobe's (ADBE) ability to integrate AI and generative AI across its product suite, ADBE stock has been stagnant. Its shares have fallen more than 10% over the past thirty days, while falling about 1% in the past six months, trailing the 15% rise in the S&P 500 index.
The stock is down 7% year to date, while the S&P 500 has risen about 8%. Investors are questioning whether services like OpenAI’s ChatGPT can potentially creep into Adobe’s continued ability to leverage AI to solidify its long-term market position. This question, among others, will be answered when the digital cloud giant giant reports first quarter fiscal 2024 earnings results after the closing bell Thursday.
The doubt in Adobe’s growth capabilities is surprising given that, in the previous earnings call, Adobe reported record-breaking revenue and solid earnings growth, thanks to the strong performance in the Digital Media segment, recent price increases and growth from Express and the early adoption of Firefly. This performance would seem to support the management’s ability to execute their strategic approach to position the company for long-term success, including Adobe's commitment to product differentiation through AI.
That said, the company’s Q1 results, along with Q2 guidance for Digital Media revenue will provide not only a gauge for maintaining its growth rate, but also the company's ability to monetize generative AI. Just as important, investors will want more revenue details about products such as Firefly models in Creative Cloud and AI services in Experience Cloud, seeking to understand the value of these integrations and the impact they are having on customer engagement and financial performance.
For the quarter that ended February, Wall Street expect the San Jose, Calif.-based company to earn $4.38 per share on revenue of $5.14 billion. This compares to the year-ago quarter when earnings came to $3.80 per share on revenue of $4.66 billion. For the full year, ending November, earnings are expected to rise 21% year over year to $17.95 per share, while full-year revenue of $21.46 billion would climb 20.5% year over year.
The fact that both full-year revenue and EPS are projected to rise north of 20% underscores the strength of Adobe’s business. Meanwhile, the company’s foray into the realm of generative AI, aiming to elevate product offerings and enhance the user experience with Firefly, is another reason to be excited about the stock. In a bid to expand Firefly's horizons and unlock greater user engagement, Adobe ventured into a strategic partnership with Google's (GOOG, GOOGL) AI language model.
As such, it’s hard to imagine for the stock to remain depressed given Adobe's potential to generate higher revenue and EPS in fiscal 2024, driven by stronger demand for Digital Media and Digital Experience. The company has shown, from its recent execution, that it is up to the task. In the fourth quarter, Adobe delivered stellar quarterly results, beating on both the top and bottom lines, reporting Q4 adjusted earnings of $4.27 per share which beat by 13 cents, while revenue of $5.05 billion rose 11.5% year over year, surpassing estimate by $30 million.
Company achieved record Q4 net new Digital Media average recurring revenue of $569 million, while cash flows from operations were $1.6 billion. Notably, the remaining Performance Obligations exiting the quarter were $17.22 billion. During the quarter, Digital Media segment revenue was $3.72 billion, rising 13% year-over-year, while Creative revenue grew to $3. billion, up 12% year-over-year. Just as impressive, Q4 Document Cloud revenue came to $721 million, up 16% year-over-year.
These numbers suggest Adobe continues to benefit from strong new user adoption and subscription revenue. On Thursday, however, the market will want to see whether Adobe can build on these strong numbers and whether the company’s AI ambitions can bear fruit.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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