The Six Five team discusses Adobe Q1 FY2024 Earnings.
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Transcript:
Patrick Moorhead: Adobe Q1. Could they take advantage of the AI BoomTown, Dan?
Daniel Newman: Yes and no. So Adobe had a top bottom, but again, when you make a top bottom but you don’t guide with a lot of confidence, the market tends to be incredibly punitive, which in this case it was, taking almost a 10% battering after it announced this quarter. The company’s performing well. It’s climbing some strength in its AI portfolio, which I expected. Didn’t necessarily come out and directly attribute a lot of how AI is exactly affecting revenue, which is something I’m eager and interested to hear more about. We’ll be at the summit I think end of March and we’ll be hearing more about it there. Company created strong cashflow, Pat. It saw growth in double-digit growth in its media, in its digital experience segments. So you had strength in some of its core and growth business areas, actually in the creative as well. A double-digit in all of them, but just low, like 10, 11, 12%.
So these businesses are growing and remember this is a company that’s like almost all of its revenue is subscription. So you got to love that about the company. Almost everything is recurring. It makes it very, very healthy. On the document side was actually its fastest growth, 18%. So that was strong. That was encouraging. It did announce a really significant buyback, $25 billion buyback. So I always say that’s a vote of confidence that the stock company believes the stock is under priced. And so while it created this huge sell, it also had this huge buyback where it could immediately initiate that, probably give the stocks some stability and strength. But again, we’re not stock or equities analysts, we’re just looking at this as the ground truth. Pat, the areas that I was super focused on for the company was how much is AI influencing its business?
From Shotnew’s commentary, it sounds like it’s strong, but I would love to hear more specifically from how much dollar-wise, how much net revenue expansion, how much stickiness, how many new customers are coming over and what the AI impact is. We did see there has been some scuttlebutt in the marketplace that Adobe’s Firefly and Image Generator is having some of the same issues that Gemini had as it relates to historical accuracy and imagery. And this is really sensitive, because I’ve been very impressed with Adobe’s approach to ethics and licensing IP, not scraping and abusing content but using real licensed content and such. But there is a lot of uncertainty right now with how these models are developed, how they are governed, how they’re insured for historical accuracy. And this is going to be a sensitivity for some time as we try to get to a balance of generative AI that is conscious of societal issues and norms and at the same time is demonstrating that it’s accurate in its depictions of things like history.
So we’re going to have to watch that a little bit. Not a direct impact of earnings, but something that I think a lot of people are paying attention to right now after Google had its recent woes with Gemini. But Pat, look, this is a healthy business, strong robust growth, multi-diversifications into different spaces including creative, including data and experience CDP, as well as media space, Pat, but solid but conservative on the guide. And again, it goes back to what I talked about. The market strength maybe is a little overdone in terms of how it’s being presented, but we’re an election year, so who knows what we’re hearing anymore and how accurate any of it is. We got to move people to vote, to the polls, right? So stories will be stories, and you and I are here to hopefully uncover what the heck is really going on. That’s what we do as analysts.
Patrick Moorhead: So I’m going to take a slightly different tack. So first off, there is going to be an analyst meeting at Adobe Summit in two weeks, which I think is really where I’m hoping we will get a lot of the answers to the growth questions. Without even looking at their numbers, I think the biggest impact, without even knowing exactly what their AI numbers are, I think this has a lot to do with, I think they’re going to have amazing growth, but they have so many users in the hundreds of millions. To flip all of them to the next new thing takes time. If I look at their big opportunity, if I’m a company and anybody with money who can be sued for copyright infringement, and I would even put… My gosh, I remember using an image that I mistakenly used. I thought it had an open license and then I used it on a blog, and they came after me and they were going to sue me unless I paid them $8,000 for a license.
I don’t know if it was Getty or somebody like that. Total mistake. It was an editor who had put that in there. So imagine we’re in this world where your Dolly 3, your MidJourney, OpenAI, your Sora, right? We have no idea where you’re getting your content from and what your basis was for learning. If you’re a company with enough money where it would hurt if you get sued, I am thinking that you are going to go with Adobe who has a very tight lid on exactly the content and the licensing that it’s using to train potentially to ground their models, their creative models. So the future I see as 100% bright. If you’re a business, who are you going to give your money to? Somebody that gets the job done, that won’t get you sued or one that there’s a question on who and when somebody might be able to come after you. What do you think, Dan? What do you think about that thesis?
Daniel Newman: I think this is going to be one of the issues of the next… I don’t know. Did you see the CTO of OpenAI yesterday? There’s that video that went around with her asked on what their training, the model, the Sora on and, God, what a disaster. I don’t know. Look, there’s so much here. But I said that about Adobe. I’ve been very pleased with their transparency, obviously, and how they’re handling it. It’s not perfect, but as we create more and more generated content, Pat, you sure want to make sure that the content you’re generating isn’t going to get you sued. So it’s going to be a big topic for some time.
Patrick Moorhead: It is. And just wait until the AI gets smart enough to go in and learn what it’s been trained on. And literally, the AI is so smart, it will come and sue you and it’ll show up in your email box.
Daniel Newman: AI lawyer. It’ll be like with a demolition man or whichever one where if you speed, the ticket just comes right out the dash. If you start speeding, it’s releasing.
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.
