It Will Take a While Before Adobe Unlocks Its AI-Enhanced Creativity Potential

On Thursday, Adobe Inc ADBE reported its fiscal third quarter earnings with top and bottom lines exceeding Wall Street estimates. But shares of the Photoshop and Acrobat maker fell 3.4% due to a muted guidance and Adobe’s indication it may take longer for AI price increases to make their way to the bottom line, with these two headwinds overshadowing solid quarterly performance results.

Third Quarter Highlights

For the quarter that ended on September 1st, revenue rose 10% YoY to $4.89 billion, narrowly topping $4.87 billion that Street analysts forecasted and resulting in an adjusted bottom line of $4.09 per share which exceeded Fact Set consensus estimate of $3.98 per share that analysts had predicted. CFO Dan Durn attributed the robust performance due to the successful launch of Adobe’s Firefly suite of tools that were released earlier this year. Adobe also raised its subscription prices that fueled its top line and helped boost earnings 20% YoY.

Digital Media segment rose 11% YoY to $3.59 billion, while Digital Experience revenues also rose 10% YoY as they brought in $1.23 billion. But net new annualized recurring revenue from Digital media went down from previous quarter’s $470 million to $464 million.

Fourth Quarter Outlook

For its its last fiscal year quarter, Adobe guided in the range between $4.975 billion and $5.025 billion. Adjusted earnings are expected in the range between $4.10 to $4.15 per share, accounting for the impact of AI-related technologies embedded in its creative cloud products. As of November 1st,  Creative Cloud pricing plans will rise from 6% to 10% to account for the new generative AI features.

A New Era Of AI-enhanced Creativity Will Take A Few Years To Play Out

On Wednesday, Adobe announced that its Firefly generative AI tool is now commercially available as it is has been natively integrated into Creative Cloud apps like Photoshop and Illustrator. It is also within Adobe Express and Adobe Experience Cloud. But Adobe will be unleashing AI-powered innovations across its product portfolio as part of its next growth chapter to attract more users, but a new era doesn’t happen overnight. For now, the San Jose-based creative software maker delivered world-class margins and earnings during its third quarter while making significant investments in its technology platforms. Durn emphasized that with its innovative capacity, global presence and strong operational rigor, Adobe is well positioned to capture the massive opportunities of the upcoming AI era that is in the making.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.