(Bloomberg) — Adobe Inc. gave a tepid outlook for sales in 2024, disappointing investors who had expected new artificial intelligence production tools to quickly boost the software company’s results.
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Revenue will be about $21.4 billion in the fiscal year ending in December 2024, the company said in a statement on Wednesday. Earnings, excluding certain items, will be up to $18 per share. Analysts, on average, had expected sales of $21.7 billion and adjusted earnings of $18 per share.
Wall Street expects Adobe to be one of the first software giants to capitalize on the excitement of genetic AI technology, which responds to prompts by producing unique text or images. In recent months, the company announced a new version of its AI model, Firefly, raised prices and focused its October user conference on the technology. The company reported “significant sales growth of our new Firefly” with major customers, according to statements prepared for a conference call after the results.
However, this enthusiasm was belied by the annual outlook. Shares fell about 6 percent in extended trading after closing at $624.26 in New York. The stock had soared 85% this year as “investors seem very comfortable with Adobe’s ability to monetize genetic artificial intelligence,” Morgan Stanley analyst Keith Weiss wrote ahead of the results.
New annual recurring revenue for Adobe’s digital media unit, which includes signature creative software such as Photoshop and Illustrator, will be $1.9 billion, the company said. That compares with an average analyst estimate of $2.02 billion. The lack of outlook for the metric, which is a measure of annual subscription sales, “is clearly the disappointment” investors are reacting to, Kirk Materne, an analyst at Evercore, wrote in a note after the earnings release.
The guidance “suggests that the company could take longer than expected to realize meaningful contributions from its productive AI products,” Bloomberg Intelligence analyst Anurag Rana wrote.
CEO Shantanu Narayen responded on a conference call to a series of questions from analysts about the guidance. “There’s nothing that we see on the horizon that would tell us — either from the economy or from the competition — that we’re not poised to have another great year,” Narayen said.
Several analysts said Adobe is known for giving a conservative annual outlook. “We’re looking at expectations prudently — there’s an opportunity to do better,” Chief Financial Officer Dan Durn said during the call.
In the fiscal fourth quarter, sales rose 12% to $5.05 billion. Earnings, excluding certain items, were $4.27 per share.
The digital media unit posted sales that gained 13 percent to $3.72 billion in the period ended Dec. 1. Revenue from the unit that includes marketing and analytics software rose 10% to $1.27 billion.
Adobe announced more than a year ago that it planned to buy design software startup Figma Inc. The acquisition has been stalled due to global regulatory reviews. Late last month, Adobe was working on remedy proposals to appease European regulators, while the US Department of Justice was said to be preparing a lawsuit to block the deal.
The company said it “strongly disagrees” with the findings published by the UK competition regulator last month and expects a decision soon from the Ministry of Justice.
Read more: Adobe says FTC is investigating software subscription practices
Separately, Adobe revealed in a filing that the US Federal Trade Commission had been investigating the company’s subscription cancellation practices for more than a year. A settlement of this matter “could result in significant monetary costs or penalties and could have a material impact on our financial results and operations,” Adobe said.
(Updates with analyst comments beginning in the fifth paragraph.)
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