Adobe Inc. (NASDAQ: ADBE) has always followed the path of innovation to maintain its dominance in the creative software market, and it is using the same strategy with generative artificial intelligence. The tech firm has effectively integrated AI into its platforms — Creative Cloud, Document Cloud, and Experience Cloud — leveraging large language models and investing in the development of proprietary models.
The Stock
For Adobe investors, there hasn’t been much to cheer about in 2024 as the stock entered a downward spiral after making a positive start to the year. Having lost about 25% in the past six months, ADBE is currently trading sharply below its 2021 peak. According to analysts, it is on track to make a rebound and cross the $600 mark once again. That is good news for those looking to own the stock, considering the relatively low valuation.
The design software maker looks set to deliver impressive numbers when it announces second-quarter results on June 13, at the close of regular trading. Experts’ consensus forecast for adjusted profit is $4.39 per share, compared to $3.91 per share in the three months ended May 2023. Meanwhile, Adobe executives are looking for Q2 earnings in the range of $4.35 per share to $4.40 per share. Second-quarter revenue is seen growing 10% annually to $5.29 billion. That comes at the higher end of the management’s revenue guidance of $5.25-$5.30 billion.
Q1 Results
Interestingly, quarterly earnings consistently topped expectations over the past six years. In the first three months of fiscal 2024, the San Jose-based tech firm’s earnings and revenues exceeded the market’s forecast. The top line moved up 11% from the prior-year period to $5.18 billion in Q1. Consequently, adjusted earnings advanced 18% to $4.48 per share. On a reported basis, net income jumped 50% year-over-year to $620 million or $1.36 per share.
Commenting on the Q1 performance, Adobe’s CEO Shantanu Narayen said at the earnings call, “Our performance reflects the essential role that Adobe products play in driving the global digital economy. We’re delivering on our strategy to unleash creativity for all, accelerate document productivity, and power digital businesses. Adobe Creative Cloud, Document Cloud, and Experience Cloud are more critical than ever to the success of creators, communicators, students, entrepreneurs, and businesses of all sizes, with AI serving as an accelerant for all. We’re a leader in delivering generative AI across all our clouds.”
AI Power
Adobe is currently busy expanding its AI strategy to more areas of the business. Its AI-powered products can significantly enhance user experience, driving strong customer growth in the long term. The company delivered excellent revenue growth over the past decade, resulting in a steady upswing in profitability and margin performance. However, it faces competition from new players like Canva, which offers similar services at more affordable prices, and emerging AI-focused design startups.
Shares of Adobe traded up about 1.7% on Wednesday afternoon. The price has constantly stayed below the 12-month average for about three months.