Adobe: artificial intelligence must now generate more revenue

Is it possible to beat the market consensus in quarterly accounts, confirm estimates for the current financial year and still be penalised by investors? It is possible. It happened to Adobe. The creative software giant, in the first quarter of 2024 - 2025, achieved revenues of $5.71 billion while non-GAAP diluted earnings per share (EPS) stood at $5.08. In both cases, the numbers were higher than expected and the fiscal year guidance itself (revenues between $23.3 and $23.55 billion and non-GAAP EPS between $20.2 and $20.5) appeared solid. And yet the group - on the day after the publication of the numbers - plummeted 12.8% on the stock exchange. Why? The thud has several reasons. Among others, one theme stands out: the monetisation of Artificial Intelligence (AI).

In order to better understand the matter, it is, first of all, necessary to recall Adobe's corporate purpose. The company, apart from the residual front (1% of sales in the last quarter) consisting of Publishing and advertising, divides its revenues into two areas. The first, 74% of sales, is the Digital media segment. It includes solutions for the creation and management of digital content and document productivity. The core business is Creative Cloud, which includes Apps such as Photoshop or Premiere (video). Also in Digital Media, there is PDF technology - with applications such as Acrobat and Acrobat Sign - aimed at offering complete digital document workflows. The second area, Digital Experience segment (25 per cent of turnover), deals instead with platforms (again with the presence of the cloud) to, on the one hand, perform data, content and digital commerce analysis; and, on the other hand, manage customer experiences through (increasingly) real-time updated profiles.

Well, it is easy to understand why Artificial intelligence (Ai) is crucial in business. Adobe's digital and sofwtare world is the natural habitat for Ai. In particular, generative AI. Thus, for example, in Photoshop, Generative Fill has been introduced - via Firefly - which allows images to be created, or completed, from textual requests. And again: in Acrobat, the Ai Assistant analyses and summarises PDF documents, answers questions and helps with content navigation. More. The group has launched an Ia model that allows videos to be generated from text and images. The examples, on closer inspection, could go on, showing the company's focus on Ia and its transversality in solutions and operational processes.

And, however, investors want to see the efforts described turn into wealth. Put differently: they expect the investments, and the strategy, related to artificial intelligence to generate revenue. The group, in last quarter's conference call, indicated that the new products directly 'augmented' with Ai, on the one hand, generated - in the quarter - over 125 million in recurring revenue; and that, on the other hand, over the entire 2024-2025 financial year, the same solutions should reach over 250 million (again in recurring revenue). It is precisely the reported numbers that did not arouse enthusiasm. Some analysts - in spite of the company's optimism - pointed out that the 'new Ia' turnover only accounted for 2.2 per cent of total revenues, while over the fiscal year the percentage should be around 1 per cent. True! Artificial Intelligence - pervasive in the entire business and declining in various forms and applications - cannot be traced back only to the data described. The group - in this sense - points out that at the end of 2023-2024, recurring revenues influenced by Ia will be over 3.5 billion dollars. Having said that, however, the doubt remains in the minds of several operators that the golden goose of artificial intelligence is not - in Adobe's circles - yet taken care of and grown in the right way.

Also because - it must be remembered - there is no shortage of competition. An example? The generative Ia model Midjourney.This is a solution - specialised in the creation of images from text commands - which, according to many, has high visual qualities. An atout that has enabled it to become well known in important communities of artists and content creators. Of course! Realities like Midjourney offer fewer guarantees with respect to the risk of copyright infringement and, therefore, seem less suitable for commercial use. That said, however, the underlying argument regarding competition remains valid.