Adobe Shares Drop on Dim Revenue Outlook

By Siddarth S
(Reuters) – Shares of Adobe (NASDAQ:ADBE) fell nearly 10% in premarket trading on Thursday after the Photoshop maker's downbeat full-year revenue forecast raised concerns about the timeline for returns from AI investments into its software applications.

"While the company remains on track with its GenAI product roadmap, we think the lack of explicit monetization metrics has made it harder for investors to get comfortable with the progress," RBC analyst Matthew Swanson said.

The San Jose, California-based company on Wednesday forecast fiscal 2025 annual revenue between $23.30 billion and $23.55 billion, compared to the average analyst estimate of $23.78 billion, according to data compiled by LSEG.

"Given another selloff, we observe a clear disconnect between management's excitement and the internal signs of success that they see relative to what investors are seeing," according to Morningstar analysts.

With recent releases of AI-related software tools, Adobe is significantly investing in AI-driven image and video generation technologies in response to rising competition from well-funded startups like Stability AI and Midjourney.

Adobe's advancements in video-generation technology put it in direct competition with ChatGPT-maker OpenAI's Sora.

Although Adobe forecast strong growth for the second half of the year in June, at least seven brokerages cut price targets on the company's shares following the revenue forecast.

"With Adobe underperforming the S&P for over 5 years now, getting back into a more consistent cadence of beat/raise is basically a necessity to rekindle long-term investor interest," said Evercore ISI, noting that the lack of clarity around generative AI monetization affects the stock negatively.

Adobe's stock has declined about 8% this year, compared to the S&P 500 index's 27.6% gain.

The company's 12-month forward price-to-earnings ratio stands at 26.46, in contrast to Autodesk (NASDAQ:ADSK)'s 33.63.