Adobe falls as annual revenue forecast triggers concerns on delayed AI returns

11:02 am Thursday, December 12th, 2024

By Siddarth S

(Reuters) -Shares of Adobe fell nearly 12% on Thursday after the Photoshop maker’s downbeat full-year revenue forecast led to concerns that returns from AI investments into its software applications might take longer than expected.

“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 with 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.

Having recently released AI-related software tools, Adobe is making significant investments in artificial intelligence-driven image and video generation technologies in response to growing competition from well-capitalized startups such as Stability AI and Midjourney.

Adobe’s advances in video-generation technology put it head-to-head with ChatGPT-maker OpenAI’s Sora.

Although Adobe projected 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,” Evercore ISI said, adding that the lack of clarity around generative AI monetization is also working against the stock.

At Adobe’s share price of $493.10, the company is on track to lose nearly $25 billion in market value if losses hold.

The stock has fallen about 8% so far this year, compared with the S&P 500 index’s 27.6% gain.

The company’s 12-month forward price-to-earnings ratio stands at 26.46, compared with Autodesk’s 33.63.

(Reporting by Siddarth S in Bengaluru; Additional reporting by Priyanka G; Editing by Shounak Dasgupta)