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Adobe Inc (NASDAQ:ADBE) is set to open 9% lower on Friday, following a fourth-quarter revenue guidance that fell short of market expectations, despite reporting a record-breaking fiscal third quarter.
The company has forecasted Q4 revenue between $5.5 billion and $5.55 billion, missing the consensus estimate of $5.6 billion. The net new annual recurring revenue (NN ARR) guidance of $550 million also came in below the projected $570 million. However, adjusted earnings per share (EPS) are expected to be between $4.63 and $4.68, aligning with the forecast of $4.65.
Jefferies analysts have attributed the miss in Q4 revenue guidance to several factors, including the timing of large deals, the impact of Cyber Monday, and a cautious stance amid the accelerating use of artificial intelligence (AI). They noted that the revenue guidance might be overly conservative. The analysts suggested that stronger pricing trends, increasing monetization of AI technologies, and growing momentum as Adobe approaches its MAX conference could result in better-than-expected performance.
Looking ahead, fiscal 2025 could be pivotal for Adobe's AI monetization. Although fiscal 2024 has seen some early monetization through new, higher-priced plans, upgrades from existing users, and increased adoption of new products like Acrobat AI Assistant, the full impact of AI usage limits might not be evident until early fiscal 2025. Analysts anticipate that changes in AI processes, particularly for video, audio, 3D, and animation, could affect how these technologies are managed and monetized.
Despite concerns about future guidance, Adobe's Q3 performance was notably strong. Revenue for the quarter was $5.41 billion, slightly exceeding the consensus estimate of $5.37 billion and marking an 11% increase compared to the same period last year. The adjusted EPS of $4.65 also surpassed the expected $4.54.
Adobe's CEO, Shantanu Narayen, praised the company's performance, attributing it to continuous innovation and a commitment to delivering value through its platforms. Narayen highlighted significant advancements in AI across Adobe's Creative Cloud, Document Cloud, and Experience Cloud, which continue to benefit millions of users globally.
As of Friday’s pre-market session, Adobe’s shares were down 9% at $533.65, reflecting investor reactions to the updated revenue guidance and its potential implications for the company’s future performance.
