Adobe Feels Threat from AI Startups – Shares Drop by 10%

Adobe’s Q1 Financial Results Meet Expectations; Shares Fall by 10% Amid Disappointing Forecast

Adobe Inc. met analysts’ expectations for the first quarter of their financial year ending on 1st March, though their uninspiring forecast for the current reporting period resulted in a 10% decline in their shares.

Increase in Sales but Missed Forecast Triggers Decline in Stock Prices

In the last quarter, Adobe increased its sales by 11% to $5.18 billion. Excluding certain items, profit was $4.48 per share. This performance surpassed the Wall Street expectations of a $5.14 billion revenue and a profit of $4.38 per share. Adobe’s digital media unit, which includes its flagship creative software products, saw a sales increase of 12% to $3.82 billion. The division responsible for marketing and analytics software saw revenue growth of 10% to $1.29 billion. However, Adobe’s forecast for the current period did not meet analysts’ expectations. The company anticipates revenue between $5.25 billion and $5.3 billion, slightly below the projected $5.31 billion. However, the expected profit will be $4.40 per share, slightly above the forecasted $4.38 per share.

Emerging Concerns from AI-Based Startup Innovation and Adobe’s Response

As a leading provider of software for creative professionals, Adobe now faces the threat of startups developing systems based on generative artificial intelligence. In response to this, Adobe has integrated its AI model, Firefly, into its flagship products, Photoshop and Illustrator. The video generation model by OpenAI, Sora, has raised new concerns among investors. Adobe’s CEO, Shantanu Narayen, expressed confidence, stating, “There may have been higher expectations about what we would be guided by. However, I remain very optimistic about what we’ve accomplished.”

The Future Looks Green for Adobe

The CEO believes that innovations in AI video generators should stimulate demand for existing Adobe products. He asserted his confidence that AI would not be able to create a film of the scale of “Oppenheimer”, which won seven Oscars, in response to a text query. The company will present new video editing tools in the coming months.

Additionally, Adobe announced a new share buyback program worth $25 billion. This program will follow the previous $15 billion buyback program, which expires at the end of the 2024 fiscal year.