Adobe Stock Drops 13% Amid AI Monetization Concerns
date
Dec 15, 2024
damn
language
en
status
Published
type
News
image
https://www.ai-damn.com/1734264575763-202005221631321587_2.jpg
slug
adobe-stock-drops-13-amid-ai-monetization-concerns-1734264616177
tags
Adobe
Stock Price
AI Tools
Earnings Report
Market Reaction
summary
Adobe's stock price fell by 13.7% following disappointing performance guidance for 2025, despite exceeding expectations in its latest earnings report. Analysts have downgraded their ratings and price targets for the company, citing delays in AI commercialization and growing competition.
Adobe Stock Drops 13% Amid AI Monetization Concerns
Adobe's (ADBE) stock price experienced a significant decline on Thursday, falling by 13.7% to close at $474.63. This drop came in response to the company's disappointing performance guidance for the fiscal year 2025, as investors reacted to the slower-than-anticipated monetization of its investments in AI tools for content creation and digital marketing.
Earnings Report and Market Reaction
The decline followed the release of Adobe's fourth-quarter earnings report on Wednesday evening. While the company's earnings exceeded expectations, its sales and earnings outlook for fiscal 2025 did not meet analysts' predictions. Adobe forecasts an adjusted earnings per share growth of 10.5%, reaching $20.35, and an 8.9% increase in sales to $23.43 billion. In comparison, analysts had anticipated adjusted earnings per share of $20.52 and sales of $23.78 billion.
So far this year, Adobe's stock has fallen over 20%.
In fiscal 2024, Adobe reported a 15% increase in adjusted earnings per share to $18.42 and an 11% rise in sales to $21.51 billion.
Challenges in AI Monetization
Adobe's Chief Financial Officer, Dan Durn, discussed the company's strategy during an interview with Investor's Business Daily, emphasizing the importance of expanding its user base for generative AI technology before pursuing monetization. Durn compared this approach to Adobe's early days with PDF technology, noting the success of offering Acrobat Reader for free to grow its user base. Today, Adobe boasts 650 million active users monthly, a 25% year-over-year increase.
Durn stated, "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 that Adobe aims to balance the popularization of generative AI while developing profitable strategies.
Analyst Downgrades
In light of Adobe's performance, several Wall Street firms downgraded their stock ratings. TD Cowen analyst Derek Wood reduced Adobe's rating from Buy to Hold, lowering the price target from $625 to $550. Wood expressed concerns about the company's focus on attracting free users before monetization, stating, "GenAI will not help reverse the growth curve in the foreseeable future."
KeyBanc Capital Markets analyst Jackson Adde maintained his Underweight rating on Adobe with a target price of $450, citing ongoing issues that have plagued investors throughout 2024. Similarly, UBS analyst Karl Keirstead kept a Neutral rating but lowered the price target from $550 to $525, highlighting the lack of evidence for AI commercialization despite Adobe's two-year focus on the technology.
Competitive Landscape
Adobe is facing increasing competition from emerging rivals such as Canva, Figma, OpenAI, Midjourney, and Stability AI. Analysts are closely monitoring Adobe's performance, noting that the company's earnings growth has consistently slowed over the past five quarters.
William Blair analyst Jack Roberg acknowledged the potential negative impact of Adobe's performance guidance on its stock but maintained an Outperform rating, expressing optimism about the long-term trajectory of the business.
Future Prospects with GenStudio
Despite these challenges, Durn expressed confidence in Adobe's GenStudio product, which he believes could evolve into the company's next billion-dollar business. He mentioned strong customer interest in this AI-driven product but did not provide a timeline for achieving the billion-dollar milestone. On October 14, Adobe announced the official launch of Adobe GenStudio for performance marketing, designed to assist brands and agencies in expediting global advertising and marketing campaigns.
Key Points
- Adobe's stock dropped 13.7% following disappointing guidance for 2025.
- Analysts downgraded Adobe's stock ratings and price targets amid concerns over AI monetization delays.
- The company faces increasing competition from various emerging rivals in the digital content space.
- Adobe's CFO emphasizes a strategy of expanding user base for generative AI before monetization.
- Strong interest in Adobe's GenStudio product is seen as a potential future growth driver.