Adobe Inc (NASDAQ:ADBE) shares fell about 6.7% on Thursday morning after investors reacted negatively to the company's latest earnings report and AI-related disclosures.
The software company had already declined 4% in after-hours trading on Wednesday, as its updated presentation on artificial intelligence (AI) revenue and growth failed to generate enthusiasm.
Adobe reported better-than-expected Q1 results, with EPS of $5.08 versus $4.97 consensus and revenue of $5.71 billion ahead of the $5.66 billion Street estimates.
However, its Q2 and full-year FY25 guidance fell slightly short of consensus. Q2 EPS guidance of $4.95 to $5 missed the $5 estimate, while revenue guidance of $5.77 billion to $5.82 billion was in line.
For the full year, Adobe guided EPS of $20.20 to $20.50 against $20.40 estimates and revenue of $23.3 billion to $23.55 billion versus $23.51 billion estimates, both slightly below expectations.
Adobe disclosed that annual recurring revenue (ARR) from standalone AI products is expected to reach approximately $250 million by year-end, representing about 1% of the company’s fiscal 2025 revenue guidance.
While AI adoption showed positive momentum, the company maintained its fiscal 2025 outlook of 9% revenue growth and an operating margin of about 46%, reflecting a slowdown from 11% revenue growth and a 46.6% margin in fiscal 2024.
Despite the market reaction, Adobe reported continued stability in its Creative Cloud (CC) segment. While the company no longer provides ARR breakdowns between Creative Cloud and Document Cloud (DC), analysts at Jefferies estimate that core Creative Cloud subscription revenue grew about 11% year-over-year in the first quarter.
Jefferies highlighted concerns about Adobe’s decision to remove segment-level ARR disclosures for Creative Cloud and Document Cloud, making direct comparisons more difficult. Additionally, remaining performance obligations (RPO) decelerated, with 13% constant currency growth compared to 16% in the previous quarter, and current RPO growth slowed to 12% from 13% in the fourth quarter.
While Adobe’s unchanged fiscal 2025 guidance and disclosure changes raised questions, Jefferies sees stabilization in Creative Cloud, improved AI monetization transparency, and a ramped-up buyback program as positives that could offset investor concerns.