(Bloomberg) -- Adobe Inc.’s shares fell the most in more than two years after the firm gave a disappointing annual sales outlook, underscoring anxieties that the creative software company may lose business to emerging artificial intelligence-based startups.
Revenue will be about $23.4 billion in the fiscal year ending in November 2025, the company said Wednesday in a statement. Earnings, excluding some items, will be $20.20 a share to $20.50 a share. Analysts, on average, estimated sales of $23.8 billion and adjusted profit of $20.52 a share, according to data compiled by Bloomberg.
Adobe, known for its software for creative professionals, has been adding generative AI features to its applications, such as embedding its proprietary model, Firefly, into products like Photoshop. The company unveiled an AI tool to create videos during its annual user conference in October, which has been integrated into editing app Premiere and is slowly rolling out to the wider public.
The software maker will soon introduce a “new higher-priced Firefly offering,” which includes video models, David Wadhwani, who leads the company’s creative business, said on a conference call after the results were released.
A closely watched metric of new creative software business — digital media net new annual recurring revenue — will increase 11% in the fiscal year, in line with estimates. Factored into guidance “is an ongoing strategy to introduce new tiered subscription offerings and add-ons,” Chief Financial Officer Dan Durn said during the call.
Adobe’s outlook may be conservative due to “the uncertain pace at which AI usage may take root,” wrote Anurag Rana, an analyst at Bloomberg Intelligence.
The shares fell 14% to $474.63 at the close Thursday in New York, their worst single-day plunge since September 2022. The stock has dropped 20% this year, lagging behind software peers and industry benchmarks. Investors have voiced recurring anxieties that AI-based creative tools from firms 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 feeling that excitement,” Keith Weiss, an analyst at Morgan Stanley, said on the conference call.
In the fiscal fourth quarter, Adobe reported that sales increased 11% to $5.61 billion. Profit, excluding some items, was $4.81 a share. Analysts, on average, projected earnings of $4.67 a share on revenue of $5.54 billion. The company ended the quarter with digital media annual recurring revenue of $17.3 billion, slightly ahead of the average analyst estimate.
The digital media unit, which includes Adobe’s flagship creative and document-processing software, posted a 12% increase in sales to $4.15 billion in the quarter ended Nov. 29. Revenue from the unit that includes marketing and analytics software rose 10% to $1.4 billion.
Integration of Firefly into applications across the company’s products “is driving record customer adoption and usage,” Chief Executive Officer Shantanu Narayen said. Firefly has been used over 16 billion times, he added.
On Monday, OpenAI made its video-generating model Sora available to those already paying for its chatbot ChatGPT. Wadhwani said Adobe’s video model will become “more broadly available in early 2025.”
(Updates with closing shares in the seventh paragraph.)
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