Adobe
stock is trading higher Wednesday following a well-received meeting with analysts, even though the company provided few concrete updates on its near-term financial outlook.
The meeting was held in conjunction with Adobe’s (ticker: ADBE) Max user conference, taking place this week in Los Angeles. The focus was squarely on the company’s growing breadth and depth of generative artificial-intelligence tools, and even without updated guidance, the Street found a lot to like, including the debut of the second generation of the Adobe’s generative AI image model.
Adobe’s fiscal year ends in November—the company reported earnings less than a month ago—and won’t give investors a forecast on fiscal 2024 until it reports fourth-quarter results in mid-December. But commentary from Adobe Chief Financial Officer Dan Durn nonetheless sounded pretty bullish to the Street. “We talked about 2023 being an extraordinarily strong year for the company, and we said the fourth quarter was a strong quarter,” he said in an interview with Barron’s.
Adobe stock is 3.2% higher, at $549.78
UBS analyst Karl Keirstead points out in a research note this morning that Adobe at the meeting “said on several occasions that it is expecting ‘another great year’ and a ‘really strong’ fourth quarter.” He cautioned investors into reading too much into those comments—he notes that the company said more or less the same thing a year ago, while results were only a modest beat. But he added that the commentary “likely limits the downside risk” even with only a modest uplift from its push to begin charging customers for access to its Firefly generative AI software.
In an interview, Durn repeated that Adobe expects “modest impact” from AI in the November quarter, with “more of that” as it moves into fiscal 2024 and 2025.
Keirstead also noted that there has been some concern on the Street about how Firefly adoption could impact the company’s margins—running large language models is expensive, and the Street isn’t entirely clear on whether Adobe’s pricing strategy for Firefly is sufficiently aggressive to prevent margin erosion.
But Durn said Adobe is taking steps to “drive efficiency” while bringing AI technologies to market. He contends the company can present “consistent stable operating models as we invest through this period of technology inflection.”
Adds Durn: “We will be disciplined. We are not going to see the margin degradation that some others might.” Among other things, Durn asserts that the company’s image-generation models are more efficient to run than large-language models with a much wider range of data.
As for the company’s ending acquisition of the collaborative design software company Figma, Durn said the company “still believes in the merits of the transaction,” and expects to hear back from both European and U.K. regulators in the next few months.
Evercore analyst Kirk Materne came away from the event impressed, repeating his Outperform rating on Adobe stock with a $605 target price. “While the first iteration of Firefly was introduced into beta six months ago, Adobe has continued to invest into continued innovation as the company believes generative AI is set to supercharge the creation of digital content, noting specifically that over three billion creative assets have been created over that six-month period,” he writes.
Bernstein analyst Mark Moerdler was similarly enthusiastic about the company’s presentations on its evolving AI software portfolio. “Adobe is using AI differently from most of their competitors—it is used to improve the creative process and decrease the time required for repetitive steps rather than to just create a quick image,” he writes in a research note. “Furthermore, Adobe is bringing to market image, video, audio and 3-D Generative AI, and the depth and breadth of functionality is unique and will drive growth for years to come.”
Write to Eric J. Savitz at [email protected]
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