(Bloomberg) — Adobe Inc.’s shares rose in after-hours trading after the company forecast strong sales of its creative products going forward and suggested customers are embracing the company’s new artificial intelligence-based tools.
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Digital media net new annual recurring revenue, a closely watched metric for new creative software businesses, came in at $460 million for the current quarter, beating the average forecast of $435.2 million.
The longtime leader in software for graphic arts professionals is facing new investor worries that generative AI will eat into its market. Application software peers including Salesforce, Workday and ServiceNow have faced similar concerns in recent weeks after reporting slowing demand. The results suggest Adobe's efforts to build AI capabilities into its products are gaining traction among customers. The company is battling smaller rivals, including startups focused on emerging technologies.
Adobe Chief Financial Officer Dan Dahn said on a conference call after the company's quarterly earnings that the company expects new creative business to accelerate through the remainder of the fiscal year.
The company also raised its full-year earnings forecast, excluding certain items, to $18.20 a share, up from its previous outlook of $18 a share. Analysts' average estimate was $18.02 a share.
Adobe's own AI model, Firefly, is integrated into products such as Photoshop and Illustrator, and the company is working on developing similar technology for its video-editing software Premiere. Chief Executive Shantanu Narayen said the model has been used to generate more than 9 billion images.
The company's shares hit a record high of $537.38 after closing at $458.74 in New York. They are down 23% so far this year after rising 77% in 2023.
The results and the stock price reaction are “in contrast to other enterprise software products,” Citigroup analyst Tyler Radke said in a note.
Adobe said in a statement on Thursday that second-quarter revenue rose 10 percent to $5.31 billion. Excluding some items, earnings were $4.48 per share. Wall Street had expected earnings of $4.40 per share and revenue of $5.29 billion. The company added that customers were upgrading to more expensive plans, including expanding their use of Firefly.
Narayen said on the conference call that the new innovations will help Adobe attract a “growing user base.”
A key concern for investors is whether Adobe can attract students and other non-professional users who have flocked to rivals such as Canva in recent years. The number of monthly active users of Express, an Adobe product for casual creators with similar features to Canva, more than doubled in the three months ended May 31 from the previous quarter, said David Wadhwani, head of Adobe's creative business.
Still, the company is in the early stages of making money from its AI products, executives said on the call, and Adobe is focused on “turning AI pipeline, interest and awareness into monetization,” Narayan said.
Adobe's Digital Media division, which includes its flagship creative and word processing software, saw sales rise 11% to $3.91 billion in the period ended May 31. Revenue from the division, which includes marketing and analytics software, rose 9% to $1.33 billion.
Particularly strong was Adobe's document cloud business, which posted $165 million in additional annualized continuing revenue in the quarter, beating the $122.7 million analysts had expected. Narayan said on the earnings call that the increase was driven by users' adoption of a new AI assistant feature that helps analyze and understand PDFs and other documents.
The upbeat outlook should ease investor concerns that other generative AI tools could hurt Adobe's growth prospects, Bloomberg Intelligence analyst Anurag Rana wrote.
(Updates quarterly results starting in ninth paragraph.)
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