Adobe Stock Dips as AI Monetization Concerns Weigh on Investors
Shares in Adobe Inc. saw a more than 4% drop in late trading on March 12, 2025. The decline was driven by increasing investor worries about the company’s approach to generating revenue from its artificial intelligence capabilities, despite Adobe reporting generally positive financial results for the first quarter of fiscal year 2025.
For the quarter that concluded on February 28th, Adobe announced adjusted earnings per share of $5.08. This figure represents an increase from the $4.48 reported during the same period in the previous fiscal year. The company’s revenue for the quarter was $5.714 billion, marking a 10% rise year over year. Both the earnings per share and revenue figures surpassed analyst expectations, which had been set at $4.97 per share and $5.66 billion, respectively.
Across its various business segments, Adobe experienced notable growth. Digital media revenue increased by nearly 11% year-over-year, reaching $4.23 billion. Digital experience revenue also saw a significant rise, growing by over 9% to $1.41 billion. However, print and advertising revenue decreased by almost 13%, totaling $70 million. Adobe concluded the quarter with digital media annual recurring revenue of $17.63 billion, a 12.6% increase compared to the prior year.
Adobe’s cash flow from operations for the quarter was recorded at $2.48 billion, with remaining performance obligations as of February 28th standing at $19.69 billion. Key business developments during the quarter included the launch of the company’s initial commercially safe artificial intelligence video generation model on February 12th. Intended to meet the requirements of creative professionals, the model, integrated into Adobe Firefly, offers users the ability to create high-quality video content with full commercial rights.
Simultaneously, Adobe revealed a range of newly AI-powered tools for its Creative Cloud applications designed to boost productivity for designers and marketers. These enhancements comprised improvements to generative fill features, text-to-image functionalities, and real-time collaboration capabilities across Adobe’s flagship software. Furthermore, in February, Adobe expanded its mobile offerings with the release of a dedicated Photoshop app for iOS, bringing advanced photo editing tools to a broader audience. Adobe also introduced several free features for Photoshop on iPad and iPhone, aiming to make its professional-grade tools more accessible.
By making more capabilities available at no cost, Adobe seeks to encourage user adoption and grow its subscription base over time.
“Our continued innovation and diversified go-to-market strategy drove a record Q1, with new AI-first standalone and add-on innovations exiting the quarter with over $125 million ending ARR book of business,” stated Dan Durn, Adobe’s executive vice president and chief financial officer, in the company’s earnings release. “Our customer-focused strategy, leading product portfolio, and strong cash flow position us for sustainable long-term growth and increased market share.”
Looking ahead to its fiscal second quarter, Adobe projects adjusted earnings per share to be in the range of $4.95 to $5, with revenue anticipated to be between $5.77 billion and $5.82 billion. The forecast missed analyst expectations for the midpoint of the EPS range of $5, as well as a slight miss in the revenue midpoint against the expected $5.8 billion.
For the full fiscal year, Adobe expects adjusted earnings per share to be between $20.20 and $20.50 on revenue ranging from $23.3 billion to $23.55 billion. Analysts had previously predicted $20.39 and $23.51 billion, respectively.
While the outlook figures were not fundamentally negative, they failed to excite investors. Reuters described the outlook as a “dull forecast,” noting that “analysts and investors are watching for when Adobe will be able to ramp the monetization of its generative AI products, as it invests heavily in distinguishing itself from rivals by infusing sharper AI editing tools into its vast portfolio.”
“I think guidance is rough and I think people are questioning, is the AI monetization quick enough?” Parker Snook, senior research analyst at M Science, told Reuters.
