Adobe posts strong earnings. CEO Promotes ‘New Era of Generative AI’

In announcing the results Thursday, Adobe CEO (ticker: ADBE) Shantanu Narayen said the company’s breakthrough innovation positions it to lead the new era of generative AI.

Adobe shares, which rallied 2.4% in regular trading, gained another 3.5% in the afterhours session.

For the quarter ended June 2, Adobe reported revenue of $4.82 billion, up 10%, topping both the company’s guidance range of $4.75 billion to $4.78 billion and Wall Street consensus of $4.77 billion.

Adjusted earnings of $3.91 per share also topped the benchmark range of $3.75 to $3.80 per share and the Street consensus of $3.79 per share. Under generally accepted accounting principles, the company earned $2.82 per share, exceeding its target range of $2.65 to $2.70 per share.

Adobe said that annual net recurring digital new media revenue, a closely watched measure of the health of the company’s subscription-based software business, was $470 million, well above Street’s consensus of $422 million. .

Adobe said its digital media segment reported revenue of $3.51 billion, up 10%, or 14% currency-adjusted, above the street at $3.46 billion. Digital experience segment revenue was $1.22 billion, up 12%, or 14% currency-adjusted and in line with expectations.

For the fiscal third quarter, Adobe expects revenue of $4.83 billion to $4.87 billion. In the middle of the range, that’s a hair short of the $4.86 billion consensus. He sees adjusted profits of $3.95 to $4 a share, above Street’s forecast of $3.88. Adobe forecasts a new net ARR for digital media of $410 million, $2 million above consensus.

Adobe sees full-year revenue of $19.25 billion to $19.35 billion. Halfway through, this is the right line with Street’s consensus. But the company raised its non-GAAP profit forecast for the year to $15.65 to $15.75 per share, up from a previous forecast of $15.30 to $15.60 per share, and ahead on the street at $15.50 per share.

CFO Dan Durn, in an interview withBarron, reiterated a comment on the company’s earnings call that Adobe’s full-year outlook for its corporate technology business was a little dimmer than previously expected as some projects and deals are slipping to due to customers’ macroeconomic concerns. When asked about the long-term impact of AI on the company’s financial prospects, he said Adobe will have more to say on this matter following its August quarter earnings report. But he said that generative AI should be a multi-decade driver for revenue and profit growth.

In March, a week after its last earnings report, Adobe announced the launch of Firefly, a generative AI co-pilot that will leverage the company’s suite of content creation tools. It launched a website to give people a chance to try out the tools, including DALL-e-like text-to-imaging software, brought to you by OpenAI, creator of ChatGPT.

Adobe also unveiled new generative AI capabilities for Photoshop, the company’s popular photo-editing product. And in early June, Adobe announced plans to offer a commercial version of Firefly and charge for it.

That news kicked off a new stage in Adobe’s recent rally.

Meanwhile, Adobe has vowed to aggressively defend its pending $20 billion deal for Figma, which is facing scrutiny from regulators in the European Union and the United Kingdom.

Durn said Barron the company continues to engage with US, UK and EU regulators and continues to believe the deal should close by the end of the year.

Jefferies analyst Brent Thill wrote in a preview research note from last quarter that the focus would be on the company’s comments on AI and Figma.

Thill said that while investors are skeptical about closing the Figma deal, the company is likely to ramp up its share buybacks if there is no transaction. And she noted that while there’s still some debate on the street about whether AI will help or hurt Adobe, the consensus has shifted to a positive view.

Email Eric J. Savitz at eric.savitz@barrons.com