Adobe drops on weak forecast fueled by AI competition fears

Adobe Inc. dropped about 10% in extended trading after giving a weak outlook for sales in the current quarter, fueling concerns that new AI-focused startups pose a competitive threat.

Revenue will be $5.25 billion to $5.3 billion in the period, the company said Thursday in a statement. Analysts, on average, projected $5.31 billion, according to data compiled by Bloomberg. Profit, excluding some items, will be as much as $4.40 a share, compared with analysts’ average estimate of $4.38.

The longtime leader in software for creative arts professionals has faced anxieties that new generative AI-based startups will cut into its market. Adobe has responded by putting its proprietary AI model, Firefly, into its top products such as Photoshop and Illustrator. Still, a recent demonstration by OpenAI of its video-generation model, Sora, reignited investors’ concerns about competition.

‘Expectations were perhaps a little higher in terms of what we would guide,’ Chief Executive Officer Shantanu Narayen said during a conference call after the results. ‘But you know I’m really optimistic about what we’ve done,’ he said of the company’s AI initiatives.

Adobe expects $440 million in new recurring creative business in the current quarter, below the $459 million expected by analysts. That likely disappointed investors who want to see greater financial impact from the new AI features, said Parker Lane, an analyst at Stifel, in an interview on Bloomberg TV. ‘Investors are hearing a lot of great things from the company on the AI front, like increased adoption, and are simply waiting for that to reflect itself in the fundamentals.’

The shares hit a low of $503.80 in extended trading after closing at $570.45 in New York. After jumping 77% in 2023, the stock has dipped 4.4% since the start of the year. This underperformance is due to fears about competition both from generative startups like OpenAI and longer-standing rivals like Canva Inc., wrote Keith Weiss, an analyst at Morgan Stanley, ahead of the results.