Adobe's (ADBE) stock price plummeted on Thursday as investors reacted to the company's disappointing performance guidance for 2025. The software company has taken longer than expected to turn its investments in content creation and digital marketing AI tools into profits.
After the company released its fourth-quarter earnings report on Wednesday evening, several Wall Street firms downgraded their price targets for Adobe's stock.
In today's stock market, Adobe shares fell by 13.7%, closing at $474.63. So far this year, Adobe's stock price has dropped by over 20%.
Adobe's fourth-quarter results exceeded expectations, but its sales and earnings outlook for the fiscal year 2025 fell short. The company anticipates that adjusted earnings per share will grow by 10.5% to $20.35, and sales will increase by 8.9% to $23.43 billion. These figures are based on the midpoint of its guidance. Analysts had previously estimated adjusted earnings per share at $20.52 and sales at $23.78 billion.
In the recently concluded fiscal year 2024, Adobe's adjusted earnings per share grew by 15% to $18.42, while sales increased by 11% to $21.51 billion.
Adobe CFO: Monetization of AI is Coming Soon
Adobe's Chief Financial Officer, Dan Durn, stated in an interview with Investor's Business Daily that the company is focused on expanding its user base for generative AI technology before monetizing it.
He mentioned that this strategy is similar to the company's approach with PDF (Portable Document Format) technology, which was commercialized through Acrobat and Document Cloud.
Durn said, "Information around the world exists in PDF format. One of the great early decisions was to make (Acrobat) Reader a free product to popularize it (PDF) across the ecosystem. Today, we have 650 million active users monthly, a 25% year-over-year increase. This free-to-paid model is indeed an effective monetization engine as we guide users through this channel into Acrobat's paid products."
He added, "This is a powerful testament to the strength of ubiquity, which can be monetized over time, creating a valuable franchise around core technology."
He stated that Adobe is trying to strike the right balance between popularizing generative AI technology and monetizing it.
Adobe Stock Rating Downgraded
TD Cowen analyst Derek Wood downgraded Adobe's stock rating from "Buy" to "Hold" on Thursday. He also lowered the price target for ADBE stock from $625 to $550.
In a client report, he stated, "With the mid-term focus on popularizing free users before commercialization, we believe GenAI will not help reverse the growth curve in the foreseeable future."
KeyBanc Capital Markets analyst Jackson Adde reiterated his "Underweight" or "Sell" rating on Adobe's stock, with a target price of $450.
In a client report, he noted, "This quarter's performance is more similar to the issues that have plagued investors throughout 2024. The pace of AI commercialization continues to be further delayed."
UBS analyst Karl Keirstead maintained his "Neutral" rating on Adobe's stock but lowered the target price from $550 to $525.
Keirstead stated in a client report, "Adobe has been pushing the AI narrative for two years, but we still do not see evidence of commercialization."
Adobe Stock Focus on Profitability
Wall Street analysts are closely monitoring Adobe's recent performance, which has been underwhelming. Adobe's earnings growth has slowed for five consecutive quarters.
Additionally, Adobe faces competition from emerging rivals such as Canva, Figma, OpenAI, Midjourney, and Stability AI.
William Blair analyst Jack Roberg noted that the company's performance guidance could negatively impact Adobe's stock. Nevertheless, he maintains an "Outperform" rating on ADBE stock.
Roberg stated in a client report, "We remain optimistic about the long-term trajectory of the business and believe Adobe is still capable of fully leveraging the opportunities presented by GenAI."
Optimistic About GenStudio's Prospects
Meanwhile, Durn expressed that Adobe believes its GenStudio product will become the company's next billion-dollar business. He mentioned that the company has seen strong interest from customers in this AI-driven product but declined to provide a timeline for reaching the billion-dollar milestone.
He said, "We are very excited about customer engagement in the early stages."
On October 14, Adobe announced the official launch of Adobe GenStudio for performance marketing. This application helps brands and agencies accelerate the delivery of global advertising and marketing campaigns.
