TLDR
- Adobe (ADBE) shares fell 5% despite exceeding Q1 fiscal 2025 earnings expectations
- Company reported $5.71 billion in revenue (10% YoY growth) and $5.08 adjusted EPS
- Adobe’s AI products reached $125 million in annualized recurring revenue (ARR)
- Forward guidance for Q2 and full-year 2025 came in slightly below analyst forecasts
- CFO Dan Durn aims to double AI-related ARR within the next year despite market skepticism
Adobe saw its stock drop approximately 5% in Thursday’s pre-market trading following its first-quarter fiscal 2025 earnings report. The San Jose-based software company delivered results that beat Wall Street expectations, but investors focused instead on guidance that fell short of analysts’ projections.
The creative software giant reported adjusted earnings of $5.08 per share for the quarter ending February 28, 2025. This exceeded the consensus estimate of $4.97 and showed improvement from the $4.48 per share reported in the same quarter last year.
Revenue performance was equally strong. Adobe generated $5.71 billion in quarterly revenue, representing a 10% increase year-over-year and surpassing analyst expectations of $5.66 billion.
The company’s artificial intelligence initiatives are beginning to show monetary results. Adobe’s AI-first products generated $125 million in ending annualized recurring revenue (ARR) during the quarter.
Chief Financial Officer Dan Durn expressed satisfaction with the company’s performance during an interview. “Really strong print, really strong quarter,” Durn told Barron’s on Wednesday.
He emphasized the company’s progress in monetizing its AI technology. “We feel really good about the innovation we’re delivering, the utilization and engagement, the usage of that technology, and now the monetization to complete the picture for investors,” he added.
Despite these positive results, Adobe’s forward guidance prompted the market selloff. For the second quarter, the company projects earnings between $4.95 and $5.00 per share.
Q2 revenue is expected to range from $5.77 billion to $5.82 billion. While these figures represent continued growth, they apparently fell short of what investors hoped to see.
Adobe maintained its full-year outlook, projecting 2025 revenue between $23.3 billion and $23.6 billion. Full-year adjusted earnings are expected to fall between $20.20 and $20.50 per share.
The midpoints of these annual projections came in slightly below Wall Street’s revenue estimate of $23.5 billion and earnings forecast of $20.39 per share. This modest gap appears to have disappointed investors expecting more aggressive targets.
Adobe’s stock had already declined 1.4% year-to-date prior to this earnings announcement. Investor concerns have centered around the pace at which Adobe is converting its AI technology into revenue.
Durn addressed this issue directly, stating that the company aims to double its AI-related ARR in the coming year.
“In a subscription model, when we talk about ARR book of business, that’s the single best metric of what revenue is going to be in the coming year,” he explained.
The CFO outlined the company’s strategy for AI growth. “We’re looking to double that book of business, so we’re going to be engaging with a ton of customers in the next three quarters to continue to ramp and drive growth.”
The broader technology sector has experienced volatility recently amid economic uncertainty. There are concerns that software companies could see reduced business if customers tighten their budgets.
Durn highlighted Adobe’s ability to weather economic challenges. “There’s a resilience of who we are as a company and you see the power of that resilience coming to the forefront in an environment like this,” he stated.
He emphasized the company’s operational approach. “In uncertain times it’s important—we control the things we can control, we stay agile to respond to the things that we can’t, and really focus on executing for our customers.”
