Adobe's AI Monetization Efforts Struggle as Stock Drops 13%
date
Dec 14, 2024
damn
language
en
status
Published
type
News
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adobe-s-ai-monetization-efforts-struggle-as-stock-drops-13-1734185423366
tags
Adobe
AI Tools
Stock Price
Earnings Report
AI Monetization
summary
Adobe's stock experienced a significant decline after the company announced disappointing 2025 guidance, following slower-than-expected monetization of its AI tools. Despite strong earnings in Q4, Adobe's projections for next year fell short of analyst expectations, prompting several downgrades from Wall Street firms.
Adobe's stock price took a sharp dive on Thursday, falling by 13.7% to $474.63, following the release of disappointing financial forecasts for 2025. This marks a troubling trend for the company, whose stock has dropped more than 20% this year alone. Investors responded negatively after Adobe revealed that it has faced delays in turning its investments in generative AI tools for content creation and digital marketing into profits.
Adobe's Q4 Earnings and 2025 Outlook
Despite exceeding expectations in its fourth-quarter results, Adobe's outlook for the fiscal year 2025 fell short. The company projected adjusted earnings per share (EPS) of $20.35, an increase of 10.5% year-over-year, and sales of $23.43 billion, up 8.9%. These figures were based on the midpoint of the company's guidance but were below analysts' expectations of EPS at $20.52 and revenue at $23.78 billion. For fiscal year 2024, Adobe's adjusted EPS grew 15% to $18.42, and sales increased 11% to $21.51 billion.
AI Monetization Strategy: A Work in Progress
Adobe's Chief Financial Officer, Dan Durn, outlined the company's strategy for monetizing its generative AI tools, emphasizing the need to first build a large user base. Durn compared this approach to Adobe's past success with PDF technology, which was popularized through free products like Acrobat Reader before transitioning to paid offerings.
"Information around the world exists in PDF format. One of the great early decisions was to make Acrobat Reader a free product to popularize it across the ecosystem. Today, we have 650 million active users monthly, a 25% year-over-year increase," Durn said. He believes that a similar free-to-paid model will be the key to monetizing Adobe's AI tools over time, stressing the importance of ubiquity as a driver for future revenue.
Stock Downgrades and Analyst Concerns
Following Adobe's earnings report, several Wall Street analysts downgraded their stock ratings, reflecting growing concerns over the delayed pace of AI commercialization. TD Cowen analyst Derek Wood lowered Adobe's rating from 'Buy' to 'Hold,' reducing the stock's target price from $625 to $550. He cited the company's focus on attracting free users before monetization, predicting that generative AI will not significantly impact growth in the near term.
KeyBanc Capital Markets' Jackson Adde also maintained a pessimistic outlook, reiterating his 'Underweight' or 'Sell' rating with a target price of $450. Adde pointed to ongoing delays in AI commercialization as a key factor weighing on the stock's performance. UBS analyst Karl Keirstead lowered his target price from $550 to $525 while keeping a 'Neutral' rating on the stock, noting that Adobe's push for AI adoption has yet to translate into meaningful commercialization.
Growing Competition and Slowing Earnings Growth
Adobe's earnings growth has slowed for five consecutive quarters, a trend that analysts are closely monitoring. Additionally, Adobe faces stiff competition from newer players like Canva, Figma, OpenAI, Midjourney, and Stability AI, all of which are capitalizing on the growing demand for AI-driven tools.
Despite these challenges, William Blair analyst Jack Roberg maintains an 'Outperform' rating on Adobe, expressing optimism about the company's long-term prospects. Roberg emphasized that Adobe still has the potential to fully leverage the opportunities presented by generative AI.
GenStudio: A Potential Billion-Dollar Opportunity
Looking ahead, Adobe remains optimistic about its GenStudio product, which is designed to help brands and agencies accelerate global advertising and marketing campaigns using AI. Durn expressed strong confidence in the product's early success, noting that there has been strong customer engagement but refrained from offering a timeline for its billion-dollar potential.
On October 14, Adobe officially launched GenStudio, marking a significant step in the company's AI-driven product offerings. Durn is hopeful that GenStudio will become Adobe's next billion-dollar business.
Key Points
- Adobe's stock fell by 13.7% after the company released disappointing 2025 financial forecasts.
- The company's generative AI tools, which were expected to drive growth, have faced delays in monetization.
- Several Wall Street analysts downgraded Adobe's stock, citing concerns over the slow pace of AI commercialization.
- Adobe CFO Dan Durn compared the AI monetization strategy to the company's past success with PDF technology.
- Adobe is hopeful about the long-term prospects of its GenStudio product, despite current challenges in AI monetization.