Adobe stock fell Thursday as investors reacted to the company's disappointing 2025 guidance. The software company is taking longer than expected to monetize its investments in AI tools for content creation and digital marketing.
More than a dozen Wall Street firms cut their price targets on Adobe stock after the company's fiscal fourth-quarter earnings report late Wednesday.
On the stock market today, Adobe stock dropped 13.7% to close at 474.63. Year to date, Adobe is down over 20%.
Adobe beat expectations for its fiscal Q4, but its outlook for sales and earnings in fiscal 2025 came in below views. For the year ahead, it sees adjusted earnings rising 10.5% to $20.35 a share with sales increasing 8.9% to $23.43 billion. That's based on the midpoint of its guidance. Analysts had been expecting adjusted earnings of $20.52 a share on sales of $23.78 billion.
In its just-finished fiscal 2024, Adobe's adjusted earnings rose 15% to $18.42 a share as sales climbed 11% to $21.51 billion.
Adobe CFO: AI Monetization Coming
Adobe Chief Financial Officer Dan Durn told Investor's Business Daily that the company is focused on expanding usage of its generative AI technology before monetizing it.
That's the same strategy it used with PDF, or portable document format, technology, which it monetized with Acrobat and Document Cloud, he said.
"The world's information lives in PDF," Durn said. "One of the great decisions early on was to make (Acrobat) Reader a free product to make it (PDF) pervasive throughout the ecosystem. Today we have 650 million monthly active users and that grew 25% year over year. And that freemium Reader funnel is a really effective monetization engine as we matriculate people through that funnel and bring them into the Acrobat paid offerings."
He added, "It's a great proof point on the power of ubiquity that then gets monetized over time to create a premium franchise around a core technology."
With generative AI, Adobe is trying to strike the right balance between proliferating the technology and monetizing it, he said.
Adobe Stock Downgraded
TD Cowen analyst Derrick Wood downgraded Adobe stock to hold from buy on Thursday. He also cut his price target on ADBE stock to 550 from 625.
"With the mid-term focus on proliferating free users before leaning into monetization, we don't see GenAI helping to bend the growth curve in the foreseeable future," he said in a client note.
KeyBanc Capital Markets analyst Jackson Ader reiterated his underweight, or sell, rating on Adobe stock with a price target of 450.
"The results in the quarter were more of the same that has vexed investors throughout 2024," he said in a client note. "AI monetization continues to get kicked further and further down the road."
UBS analyst Karl Keirstead kept his neutral rating on Adobe stock but trimmed his price target to 525 from 550.
"Adobe's been pushing an AI narrative for 2 years now and we still see no evidence of monetization," Keirstead said in a client note.
Adobe Stock Focus On Earnings
Wall Street analysts are focused on Adobe's near-term performance, which has been uninspiring. Adobe's earnings growth has decelerated for five straight quarters.
Also, Adobe is facing competition from upstart rivals such as Canva, Figma, OpenAI, Midjourney and Stability AI.
William Blair analyst Jake Roberge said the company's guidance will be an overhang on Adobe stock. Still, he maintained his outperform rating on ADBE stock.
"We remain positive on the long-term trajectory of the business and believe that Adobe remains well positioned to capitalize on the GenAI opportunity," Roberge said in a client note.
Upbeat About GenStudio Prospects
Meanwhile, Adobe believes that its GenStudio product will be the company's next billion-dollar business, Durn said. The company is seeing "deep customer interest" in the AI-powered product, Durn said. He declined to give a time frame for reaching the billion-dollar milestone.
"We're very excited about the early days of engagement with our customers on that," he said.
Adobe announced the general availability of Adobe GenStudio for Performance Marketing on Oct. 14. The application helps brands and agencies accelerate the delivery of global advertising and marketing campaigns.
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