Adobe falls after tepid forecasts raise fears of AI disruption

(Bloomberg) — Adobe Inc. fell. in extended trading after giving a disappointing annual sales forecast, underscoring fears that the creative software company may lose business to artificial intelligence-based startups.

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Revenue will be about $23.4 billion in the fiscal year ending November 2025, the company said Wednesday in a statement. Earnings, excluding certain items, will be $20.20 per share to $20.50 per share. Analysts, on average, estimate sales of $23.8 billion and adjusted earnings of $20.52 per share, according to data compiled by Bloomberg.

Adobe, known for its software for creative professionals, has been adding creative AI features to its applications, such as including its own template, Firefly, in products like Photoshop. The company unveiled an AI video creation tool during its annual user conference in October, which has been integrated into the Premiere editing app and is slowly being rolled out to the wider public.

The software maker will soon introduce a “new, higher-priced Firefly offering,” which includes video templates, David Wadhwani, who leads the company’s creative business, said in a conference call after the results were published.

A closely watched metric for new creative software businesses — net new recurring digital media revenue — is expected to increase 11% in the fiscal year, in line with estimates. Factoring into the guidance “is an ongoing strategy to deliver new subscription offerings and add-ons,” CFO Dan Dorn said during the call.

Anurag Rana, an analyst at Bloomberg Intelligence, wrote that Adobe’s forecast may be conservative due to “the uncertain pace at which the use of artificial intelligence may take root.”

Shares fell nearly 9% in extended trading after closing at $549.93 in New York. The stock is down 7.8% this year, lagging software peers and industry benchmarks. Investors have repeatedly expressed concerns that AI-based creative tools from companies like OpenAI or Runway AI could take market share from Adobe.

While company executives and customers tout the value of Adobe’s new AI tools, “investors aren’t getting that excited,” Morgan Stanley analyst Keith Weiss said on the conference call.

In its fiscal fourth quarter, Adobe reported that sales increased 11% to $5.61 billion. Earnings, excluding certain items, were $4.81 per share. Analysts, on average, expected earnings of $4.67 per share on revenue of $5.54 billion. The company ended the quarter with annual recurring digital media revenue of $17.3 billion, slightly above analysts’ average estimates.

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