Adobe Inc. faced a significant setback in after-hours trading, with shares dropping approximately 10% following the company’s announcement of a tepid sales forecast for the current quarter. The lackluster outlook has fueled concerns among investors regarding heightened competition from emerging AI-focused startups.
According to Adobe’s statement on Thursday, revenue for the upcoming quarter is projected to range between $5.25 billion and $5.3 billion, slightly below analysts’ average estimate of $5.31 billion. Similarly, profit, excluding certain items, is expected to reach up to $4.40 per share, just shy of the average analyst estimate of $4.38 per share.
Despite Adobe’s efforts to integrate its proprietary AI model, Firefly, into flagship products like Photoshop and Illustrator, fears persist that the emergence of new generative AI startups could encroach upon its market dominance. The recent demonstration of OpenAI’s video-generation model, Sora, has reignited concerns among investors regarding intensified competition.
During a conference call addressing the results, CEO Shantanu Narayen expressed optimism about the company’s AI initiatives but acknowledged that expectations for guidance were higher than anticipated.
Adobe’s forecast of $440 million in new recurring creative business for the current quarter fell short of analysts’ expectations of $459 million. This disappointment underscores investors’ desire to witness a more significant financial impact from Adobe’s AI endeavors.
In extended trading, Adobe shares plummeted to a low of $503.80, compared to the closing price of $570.45 in New York. The stock, which surged 77% in 2023, has experienced a 4.4% decline since the beginning of the year, primarily driven by concerns over competition from both emerging startups like OpenAI and established rivals like Canva Inc.
Despite the setback, Adobe reported a solid performance in its fiscal first quarter, with sales increasing by 11% to $5.18 billion and adjusted earnings reaching $4.48 per share. The digital media unit, which includes Adobe’s flagship creative and document-processing software, recorded sales growth of 12%, while revenue from the division encompassing marketing and analytics software rose by 10%.
Looking ahead, Adobe executives emphasized plans to further monetize AI features and showcase additional video capabilities in the coming months. The company also announced a new $25 billion share buyback program, signaling confidence in its long-term growth prospects.
