Adobe stock drops as AI monetization concerns weigh on investors

Shares in Adobe Inc. fell over 4% in late trading today on concerns about the creative, marketing and document management solutions company’s efforts to monetize its artificial intelligence offerings, despite Adobe reporting otherwise solid fiscal 2025 first quarter results.

For the quarter that ended on Feb. 28, Adobe reported adjusted earnings per share of $5.08, up from $4.48 in the same quarter of the previous fiscal year, on revenue of $5.714 billion, up 10% year-over-year. Both figures were beats, as analysts had been expecting $4.97 per share and revenue of $5.66 billion.

Across Adobe’s various segments, digital media saw revenue of $4.23 billion, up 10.7% year-over-year, digital experience revenue came in at $1.41 billion, up 9.3% year-over-year and print and advertising revenue was $70 million, down 12.5%.

Adobe ended the quarter with $17.63 billion in digital media annual recurring revenue, up 12.6% year-over-year. Cash flow from operations through the quarter was $2.48 billion and remaining performance obligations as of Feb. 28 were $19.69 billion.

Business highlights in the quarter included Adobe’s launching its first commercially safe artificial intelligence video generation model on Feb. 12. Designed to meet the needs of creative professionals, the model, integrated into Adobe Firefly, allows users to generate high-quality video content with full commercial rights.

At the same time, Adobe also introduced a suite of new AI-powered tools for its Creative Cloud applications designed to enhance productivity for designers and marketers. The updates included improvements to generative fill, text-to-image features and real-time collaboration capabilities across Adobe’s flagship software.

Later in February, Adobe expanded its mobile offerings with the launch of a dedicated Photoshop app for iOS, bringing advanced photo editing tools to a broader audience. Adobe also introduced several free features for Photoshop on iPad and iPhone, which lowered the barrier for entry to its professional-grade tools. As noted at the time, by offering more capabilities at no cost, Adobe is aiming to drive user adoption and expand its subscription base over time.

“Our continued innovation and diversified go-to-market strategy drove a record Q1, with new AI-first standalone and add-on innovations exiting the quarter with over $125 million ending ARR book of business,” said Dan Durn, executive vice president and chief financial officer of Adobe, in the company’s earnings release. “Our customer-focused strategy, leading product portfolio and strong cash flow position us for sustainable long-term growth and increased market share.”

For its fiscal second quarter, Adobe expects adjusted earnings per share of $4.95 to $5 on revenue of $5.77 billion to $5.82 billion. Earnings were a miss at the midpoint as analysts had been expecting $5, while revenue was an ever so slight miss at the midpoint versus the $5.8 billion expected.

For the full year, the company expects adjusted earnings per share of $20.20 to $20.50 on revenue of $23.3 billion to $23.55 billion; analysts had been expecting $20.39 and $23.51 billion.

None of the outlook figures were fundamentally bad or huge misses, but they weren’t exciting either. Reuters labeled the outlook as a “dull forecast” and noted that “analysts and investors are watching for when Adobe will be able to ramp the monetization of its generative AI products, as it invests heavily in distinguishing itself from rivals by infusing sharper AI editing tools into its vast portfolio.”

“I think guidance is rough and I think people are questioning, is the AI monetization quick enough?” Parker Snook, senior research analyst at M Science, told Reuters.

Image: Adobe