Key Points
- Adobe’s fourth-quarter earnings forecast fell below analysts’ expectations, causing a significant drop in its stock price.
- High interest rates, economic challenges, and competition from AI startups impact Adobe’s growth and demand for AI-integrated editing tools.
- Adobe reported higher-than-expected revenue for the quarter that ended August 30 but saw an increase in operating expenses due to investments in AI technologies.
- Adobe plans to release the Adobe Firefly Video Model, a generative AI-powered video creation tool, in a limited release later this year.
Adobe, the maker of popular software like Photoshop and Acrobat, forecast fourth-quarter earnings below analysts’ expectations on Thursday. The announcement highlighted tough competition and weaker demand for its AI-integrated editing tools in the current challenging economic climate, leading to a 9.2% drop in Adobe’s shares during extended trading.
The San Jose-based company, founded in 1982, is one of the largest software suppliers for visual and video artists. However, Adobe faces growing competition from AI-focused startups such as Stability AI and Midjourney, which offer similar services like generating images from text prompts. This competitive pressure comes when high interest rates and broader economic challenges are causing businesses and individuals to cut costs, further impacting Adobe’s growth prospects.
For the fourth quarter, Adobe projects revenue between $5.50 billion and $5.55 billion, falling short of the $5.61 billion expected by analysts surveyed by LSEG. The company also anticipates a quarterly profit, excluding items, in the range of $4.63 to $4.68 per share, which aligns with estimates of $4.67 per share.
Despite the subdued forecast, Adobe’s revenue for the quarter ended August 30 exceeded expectations, coming in at $5.41 billion compared to the $5.37 billion anticipated by LSEG. However, operating expenses rose to $2.86 billion, up from $2.61 billion a year earlier, reflecting the company’s increased investments in new technologies, including AI.
To bolster its market position and appeal to creative professionals, Adobe is set to launch a new generative AI-powered video creation tool called Adobe Firefly Video Model later this year. This tool, initially available in a limited release, is expected to attract attention from the creative community seeking advanced AI capabilities for video production.
Adobe’s cautious outlook underscores the broader pressures facing technology companies amid economic uncertainties and increased competition from agile, AI-driven startups. As Adobe continues to innovate with new AI tools, it remains to be seen how well it can navigate these headwinds and sustain its leadership in the creative software market.
