The News: Adobe posted first quarter (Q1) fiscal year (FY) 2024 revenue in line with analysts’ expectations, reaching $5.18 billion, which was an 11% increase over the $4.66 billion posted for the same period a year ago, and up 12% in constant currency. The company also delivered double-digit revenue growth in cloud services, with the Digital Media segment revenue reaching $3.82 billion, and the Document Cloud segment revenue hitting $750 million. However, the company’s relatively light revenue guidance for second quarter (Q2) FY 2024 came in below analysts’ expectations, and potentially signaled weaker demand for the company’s products in the near term. This resulted in Adobe’s stock price dropping in the days following the earnings announcement.
Q1 FY 2024 by the numbers:
- Earnings: Adjusted non-GAAP earnings per share (EPS) were $4.48, versus $3.80 in FY 2023. The termination of the Figma deal in Q4 2023 resulted in a $1 billion payment, affecting Adobe’s Q1 GAAP EPS and full year FY 2024 GAAP EPS.
- Revenue: $5.18 billion versus $4.66 billion, reflecting an 11.3% increase versus Q1 FY 2023.
- Operating Income: Adjusted $2.47 billion versus $2.13 billion Q1 FY 2023 performance.
- Net Income: Adjusted $2.05 billion versus $1.75 billion in Q1 FY 2023. Adobe announced a new $25 billion share repurchase program to return capital to shareholders.
Q2 FY 2024 guidance includes total revenue of $5.25 to $5.30 billion, which translates to growth of 8.9% to 10% year-over-year (YoY), though analysts had expected growth of 10.2% YoY for the quarter.
You can read the full press release on the Adobe website.
Adobe Posts Solid Q1 FY 2024 Quarter on $5.18B in Revenue
Analyst Take: Adobe is perhaps a victim of its own success, and the resulting sky-high expectations of investors. The company has delivered quarter upon quarter of earnings and revenue beats, and Q1 2024 was no exception. With overall revenue growth of 11.32% YoY, the first quarter’s top and bottom lines exceeded the analysts’ consensus estimate, and individual product groups continue to perform well.
For example, Adobe generated $3.82 billion in revenue in its Digital Media segment, reflecting YoY growth of 12%, or 13% in constant currency, and $750 million in revenue in its Document Cloud segment, representing YoY growth of 18% as reported and in constant currency. Adobe’s Digital Experience segment posted $1.29 billion in revenue and net new Digital Media annual recurring revenue (ARR) of $432 million.
These quarterly revenue figures are indicative of a company that has taken advantage of the strong appetite for an integrated platform that is leveraging generative AI in a safe and responsible way. The integration of Firefly into Adobe’s Creative Cloud flagship applications and Adobe Express has resulted in the generation of more than $6.5 billion in assets to date. Firefly’s web-based interface for ideation and rapid prototyping has seen tremendous adoption, indicating its significant impact on the creative process.
Adobe also introduced Firefly Services, an AI platform that allows enterprises to embed and extend Adobe’s technology into their creative, production, and marketing workflows. It allows enterprises to create custom models using proprietary datasets and enables embedding this functionality through APIs into various processes such as email, media placement, social, and web creation.
Strong Usage Metrics from an Early Customer
One key example of the platform’s success is IBM, which was an early adopter of Adobe Firefly. The company has used Firefly to generate 200 campaign assets and more than 1,000 marketing variations in moments rather than months, driving 26X higher engagement than its benchmark and reaching more key audiences.
Firefly’s introduction and subsequent adoption have positively impacted Adobe’s financials. Within its Digital Media segment, creative revenue rose 11% YoY to $3.07 billion.
Adobe also has the new Adobe Express mobile app beta, which directly brings the magic of Adobe Firefly AI models into mobile workflows. This first-of-its-kind integration with TikTok’s creative assistant makes creating and optimizing social media content quicker, easier, and more effective than ever before.
Adobe Core Operating Metrics Appear Strong
In 2022, Adobe announced its intention to acquire Figma, a cloud-based design tool that allows teams to collaborate on projects in real time, for $20 billion. If the acquisition had gone through, Adobe could have consolidated its position in the design software market, potentially integrating Figma’s features into its own suite of tools such as Adobe Photoshop, Premiere Pro, After Effects, Acrobat, Illustrator, and many more.
However, the deal was eventually called off due to regulatory concerns, which affected Adobe’s net income ($1 billion merger and acquisitions payment) by terminating the Figma transaction. Dan Durn, Adobe’s EVP and CFO, reported during the earnings call that this affected the company’s Q1 GAAP EPS figure, which Durn says could have been elevated by $2.19 higher if the deal had not been terminated. This $1 billion charge to end the Figma acquisition, however, has no bearing on the rest of the company’s financial health.
Durn also mentioned on the earnings call that Adobe is announcing a new $25 billion share repurchase program, which demonstrates Adobe’s continued commitment to returning capital to their shareholders and faith in its portfolio and vision.
Durn highlighted that Adobe’s operating cash was up 28% (excluding the $1 billion it paid for the acquisition termination fee). Additionally, he indicated that the company’s deferred revenue and unbilled backlog contributed to its cash flow growth in the quarter.
Q1 FY 2024 Subscription Growth Remained Healthy
Given the size of the opportunity with generative AI, Adobe continues to focus on driving innovation, adoption, and usage of its AI solutions. In Q1, Adobe saw strength across all of its clouds, with record new commercial subscriptions in Creative Cloud for Q1, with ARR of $12.78 billion, Digital Media ARR of $15.76 billion, and strong product-led ARR of $2.98 billion for Document Cloud.
Future Outlook for Adobe and its Share Price
The stock price hit is perhaps largely due to the nature of the market, which reacts to good news with a shrug, and a cautious outlook with a “the sky is falling” mentality. We believe that even with a more cautious short-term outlook for subscription revenue, Adobe remains a solid organization that has taken the right steps to deploy AI across its product portfolio. New AI features continue to be rolled out, and we expect Adobe will continue to attract and retain customers over the long term as enterprises continue to focus on vendors that take a responsible approach to training and deploying AI models and capabilities.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Adobe’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
