Adobe Faces Setback as Stock Drops 13% Amid AI Monetization Delay
date
Dec 15, 2024
damn
language
en
status
Published
type
News
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adobe-faces-setback-as-stock-drops-13-amid-ai-monetization-delay-1734222446241
tags
Adobe
AI Tools
Stock Price
Earnings Report
Generative AI
summary
Adobe's stock dropped by 13% following disappointing 2025 guidance and a slower-than-expected monetization of AI tools. Despite strong Q4 results, analysts downgraded their ratings, citing concerns over AI commercialization. Adobe remains optimistic about its generative AI products, particularly GenStudio.
Adobe's stock took a significant hit on Thursday, falling 13.7% to $474.63 after the company released disappointing guidance for 2025. Investors were concerned that Adobe has struggled to generate profits from its investments in content creation and digital marketing AI tools, leading to multiple Wall Street firms downgrading their price targets for the stock.
The drop marked a year-to-date decline of over 20% in Adobe's share price. Despite exceeding expectations in its fourth-quarter results, the company’s outlook for fiscal year 2025 fell short. Adobe forecasts adjusted earnings per share to grow by 10.5%, reaching $20.35, while sales are expected to rise by 8.9% to $23.43 billion. These figures were below analysts' estimates, which had anticipated earnings per share of $20.52 and sales of $23.78 billion.
In fiscal year 2024, Adobe’s adjusted earnings per share grew by 15% to $18.42, and sales increased by 11% to $21.51 billion. Despite these positive results, the company faces growing challenges in turning its generative AI investments into a profitable revenue stream.
AI Monetization Plans Under Scrutiny
Adobe’s Chief Financial Officer, Dan Durn, emphasized the company’s strategy of expanding its user base for generative AI tools before monetizing them. Durn drew parallels to Adobe’s successful PDF strategy, where the company made Acrobat Reader free to drive adoption of the PDF format. Today, Adobe has 650 million active monthly users, a 25% increase year-over-year, and continues to generate revenue from its paid Acrobat products.
“We are focused on popularizing the AI technology, and once it gains ubiquity, we will shift to monetization,” said Durn. “This is similar to how we built Acrobat into a valuable business through the free-to-paid model.” Adobe’s goal is to build a broad AI user base before monetizing its tools over time.
Stock Downgrades Amid AI Delays
Following Adobe’s earnings report, several analysts downgraded the company’s stock. TD Cowen analyst Derek Wood lowered his rating from 'Buy' to 'Hold' and reduced the price target for Adobe from $625 to $550. In a report to clients, Wood noted that while Adobe is focusing on expanding its user base, the company may not see AI-driven growth in the near term.
KeyBanc Capital Markets analyst Jackson Adde echoed similar concerns, maintaining his 'Underweight' rating with a target price of $450. He highlighted that the pace of AI commercialization had been slower than expected, a factor that has plagued Adobe’s performance throughout 2024.
UBS analyst Karl Keirstead kept a 'Neutral' rating on Adobe, but lowered his price target from $550 to $525. He stated that despite Adobe’s two-year push to commercialize AI, there is little evidence of substantial progress in monetizing its AI tools.
Challenges and Competition
Adobe is facing heightened competition in the AI space, with emerging rivals such as Canva, Figma, OpenAI, Midjourney, and Stability AI. Wall Street analysts are closely monitoring Adobe’s performance, particularly given its declining earnings growth over the past five quarters.
William Blair analyst Jack Roberg noted that while Adobe’s performance guidance may hurt its stock, he remains optimistic about the company’s long-term prospects. Roberg believes that Adobe can still capitalize on the opportunities presented by generative AI.
GenStudio: A Potential Bright Spot
On a more positive note, Durn expressed confidence in Adobe’s GenStudio product, which the company sees as a potential future billion-dollar business. GenStudio, a performance marketing tool driven by AI, has attracted strong interest from customers since its launch in October 2024. While Durn did not provide a specific timeline for reaching the billion-dollar milestone, he noted that customer engagement in the early stages has been promising.
In conclusion, while Adobe remains optimistic about its generative AI products, including GenStudio, the company faces significant hurdles in monetizing these tools, leading to investor concerns and stock downgrades.
Key Points
- Adobe's stock dropped 13.7% following disappointing guidance for 2025.
- The company’s AI monetization strategy faces delays, and analysts have downgraded their ratings.
- Adobe remains optimistic about the long-term potential of its generative AI products, particularly GenStudio.
- Competition from emerging rivals like Canva and OpenAI is intensifying.
- Adobe's GenStudio shows strong early customer engagement, with potential for future growth.