Adobe Stock Drops 13% Amid AI Monetization Concerns
date
Dec 14, 2024
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language
en
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Published
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News
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adobe-stock-drops-13-amid-ai-monetization-concerns-1734151158171
tags
Adobe
AI Tools
Stock Price
Earnings Report
Monetization
summary
Adobe's stock price experienced a significant decline of 13.7% following disappointing guidance for 2025, raising concerns about the company's ability to monetize its AI investments. Despite positive fourth-quarter earnings, analysts downgraded their ratings and price targets, citing delays in AI commercialization and increased competition in the market.
Adobe Stock Drops 13% Amid AI Monetization Concerns
Adobe's (ADBE) stock plummeted by 13.7% on Thursday, closing at $474.63, as investors reacted to the company's disappointing performance guidance for fiscal year 2025. The decline marks a drop of over 20% in Adobe's stock price year-to-date.
Earnings Report and Market Reaction
After releasing its fourth-quarter earnings report on Wednesday evening, several Wall Street firms quickly downgraded their price targets for the company. Although Adobe's latest quarterly results exceeded expectations, the forward-looking sales and earnings outlook fell short of analysts' projections.
The company anticipates adjusted earnings per share will grow by 10.5% to $20.35, while sales are expected to increase by 8.9% to $23.43 billion, based on the midpoint of its guidance. In contrast, analysts had estimated adjusted earnings per share at $20.52 and sales at $23.78 billion.
In fiscal year 2024, Adobe reported a 15% increase in adjusted earnings per share, reaching $18.42, alongside an 11% rise in sales to $21.51 billion.
AI Monetization Strategy
Adobe's Chief Financial Officer, Dan Durn, emphasized the company's strategy to expand its user base for generative AI technology before monetizing it. In an interview with Investor's Business Daily, he cited the company's successful approach with PDF technology, which was popularized through free products like Acrobat Reader.
Durn stated, "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 (PDF) across the ecosystem. Today, we have 650 million active users monthly, a 25% year-over-year increase. This free-to-paid model is indeed an effective monetization engine as we guide users through this channel into Acrobat's paid products."
He reiterated the importance of balancing the promotion of generative AI technology with its eventual monetization.
Downgrades from Analysts
Following the earnings report, TD Cowen analyst Derek Wood downgraded Adobe's stock rating from "Buy" to "Hold" and reduced the price target from $625 to $550. He noted, "With the mid-term focus on popularizing free users before commercialization, we believe GenAI will not help reverse the growth curve in the foreseeable future."
KeyBanc Capital Markets analyst Jackson Adde maintained an "Underweight" or "Sell" rating on Adobe's stock, with a target price of $450, citing ongoing issues that have plagued investors throughout 2024 and delays in AI commercialization.
UBS analyst Karl Keirstead retained his "Neutral" rating but lowered the target price from $550 to $525, commenting, "Adobe has been pushing the AI narrative for two years, but we still do not see evidence of commercialization."
Continued Challenges and Competition
Adobe's recent performance has been scrutinized by Wall Street, as the company has experienced slowing earnings growth for five consecutive quarters. Additionally, it faces increasing competition from emerging rivals such as Canva, Figma, OpenAI, Midjourney, and Stability AI.
William Blair analyst Jack Roberg has expressed concern that the company's performance guidance could negatively affect its stock but remains optimistic about Adobe's long-term opportunities in the GenAI space.
Future Prospects with GenStudio
Durn expressed confidence that Adobe's GenStudio product could become the next billion-dollar business for the company. He noted strong customer interest in the AI-driven product but did not provide a timeline for achieving the billion-dollar milestone.
On October 14, Adobe officially launched Adobe GenStudio for performance marketing, designed to assist brands and agencies in accelerating the delivery of global advertising and marketing campaigns.
Key Points
- Adobe's stock dropped 13.7% after disappointing 2025 guidance.
- Analysts downgraded their ratings and price targets following the earnings report.
- The company's focus remains on expanding its user base for generative AI before monetization.
- Adobe continues to face competition from emerging AI-driven companies.
- The GenStudio product is anticipated to become a significant revenue generator for Adobe.