Adobe stock toppled Friday after the digital media and marketing software firm predicted weaker-than-expected sales for the current quarter. Investors are wondering when Adobe will see a boost from its innovations in generative artificial intelligence.
The news pulled down other enterprise software stocks as well. Industry peers falling on Friday included HubSpot, Microsoft, Salesforce and ServiceNow.
At least 15 Wall Street analysts cut their price targets on Adobe stock after the company released its quarterly results and guidance late Thursday.
Adobe beat Wall Street's targets for its fiscal first quarter ended March 1 but offered a lackluster outlook. It predicted adjusted earnings of $4.38 a share, in line with estimates, on sales of $5.28 billion, just shy of views for $5.31 billion, for its fiscal second quarter.
Its forecast calls for earnings growth of 12% year over year and sales growth of 10%. That would be its third consecutive quarter of decelerating earnings growth and second straight quarter of slowing sales.
Adobe Stock Takes A Tumble
On the stock market today, Adobe stock tumbled 13.7% to close at 492.46. With the drop, Adobe stock plunged below its 200-day moving average line, a key support level, according to IBD MarketSurge charts.
Adobe missed analyst estimates for annualized recurring revenue in its Digital Media segment.
"This is creating concerns on the health of Creative Cloud and the pace of AI monetization," Jefferies analyst Brent Thill said in a client note. AI monetization has been slower than what investors want, he said.
"Adobe continues to focus on driving AI adoption and usage, with monetization more likely later in '24 and into '25," Thill said. He kept his buy rating on Adobe stock with a price target of 700.
Generative AI Monetization Coming
UBS analyst Karl Keirstead reiterated his neutral rating on Adobe stock and slashed his price target to 540 from 600.
In a client note, Keirstead said Adobe has posted two straight quarters of disappointing results for its Creative Cloud business. That could signal that Adobe has a growth problem caused by a combination of a weak macroeconomic climate and competition from Canva, Figma and other firms, among other factors.
Deutsche Bank analyst Brad Zelnick reiterated his buy rating on Adobe stock with a price target of 650.
The emergence of competing generative AI tools for images and video should be a positive for Adobe, he said. That's because creators will still need tools to edit those images and videos, Zelnick said.
Adobe's generative AI products like Firefly and AI Assistant are only beginning to be monetized, he said.
Adobe should benefit from new products and generative AI growth starting in the second half of the year, Mizuho Securities analyst Gregg Moskowitz said in a client note. He kept his buy rating on Adobe stock with a price target of 680.
Stay Tuned, Adobe Executive Says
Adobe is working to embed generative AI into its entire product portfolio. It's introduced the capability in Photoshop and Illustrator and plans to have a text-to-video creation product later this year. It also has previewed a music generator product.
"There are a lot of things in the pipeline that are going to be coming out in the months ahead," Chief Financial Officer Dan Durn told IBD.
And Adobe is just getting started on monetizing its generative AI technology, Durn said. That will involve experimentation and refinements in pricing schemes over time, he said.
"We're seeing early proof points of success from a monetization standpoint, particularly in the enterprise, and that spans both the Digital Media and Digital Experience businesses," he said. "But we're in the early days."
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