The Six Five team discusses Adobe Q2FY24 earnings.
If you are interested in watching the full episode you can check it out here.
Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Transcript:
Patrick Moorhead: Adobe’s second quarter earnings. Dan, is AI making it happen or not?
Daniel Newman: So, look, I mean the market is the ultimate arbiter. So the last few weeks, and we’re going to talk about this later so I won’t spoil it, but software has been kind of in the crosshairs, right? Everybody’s turning all their dollars to infrastructure. The only place to make money in the market is, like we’ve said, is NVIDIA and now Broadcom. To some extent, we’ve even seen OEMs like Dell and Supermicro just have these incredible runs despite some recent pullbacks or temporary pullbacks. But the net net of it is that consumption of AI is going to happen in the cloud. This is the most accessible to most people to use AI. And so companies, whether it’s been, you talk about Salesforce, it’s ServiceNow, IBM, Oracle, and Adobe are the ones that are really making AI, and by the way, have made AI for a long time.
If you’ve been using tools with Adobe, this is not a new thing. Some of the generative capabilities have continued to evolve very quickly. And let’s be really candid, Adobe’s been adjusting on the fly. It’s had some controversial items in its different agreements and how it’s accessed and trained, but we’ve talked about that. That is a really, really fluid topic right now. So if everybody’s going to send stock storing for partnerships with OpenAI, then you can’t possibly be upset with Adobe for it trying to move quickly, ethically, and not necessarily nailing it 100% every time, at least in the eye of the beholder.
I’m very fascinated, by the way, over the last few weeks with Slack and Adobe that people are actually reading their licensing agreements. I didn’t know anyone did that. So that’s a good improvement. So let’s get to the earning side of things. They beat. They beat and they raise. So what do people want? They beat. They beat the raise. The arbiter of the market sent them up about 14%. I think it may be a little bit even more than that in the post-market after the reporting. The numbers were good, they had about a 10% revenue growth, which by the way is kind of interesting because I think Salesforce said they were at 9% and the world kind of lost its mind and sent the thing bombing downward. But the question really is about adoption.
And the thing about Adobe that is strong is that people seem to be paying for its AI. The ability to add AI is something that people are willing to pay for, which is one of the big demarcations between software that should get the market boost around AI and companies that AI is literally a feature for maintaining customers. And so overall, the company performed well. It’s getting AI into all the right places across its different clouds, document cloud, it’s been there, they’re adding more creative cloud. That’s been a big boost. And then of course the experience cloud, which is the whole customer data platform, CRM side of the business, that continues to be a growth vehicle for the company as well.
Are they growing fast enough? I mean it seems that the street says yes. I think everybody wants SaaS companies to be growing much over rule of 50, really. But they have the strong margins, they have the growth rate, they have the diversification, they have AI in their products, and they’ve been able to move really, really quickly and now they’re getting upgraded subscribers to their Firefly product and that’s one of the big indicators of the success, Pat. So, solid, good, market likes it. I like it. Software is going to be a really interesting part of the market to watch because I don’t think it’s gotten much AI credit so far. And is that a temporary thing, Pat? Or is that a forever thing? Meaning, is software doomed? I say no, but some people seem to think the answer might be yes.
Patrick Moorhead: Yeah, that was good analysis, Dan. And I wanted to point out a couple things. While I would have preferred them, like Broadcom and like NVIDIA to say, and even Microsoft for that matter, “This is how much of our revenue is AI and this is how much it boosted.” We didn’t get that. What we did do is we did get some of the cookie crumbs and that was 9 billion Firefly images to date, generative fill and generative expand are two of the top three features in the latest versions of Creative Cloud. The one thing Dan, I can’t get yet right in my mind, and maybe this is just time, is when I was at Adobe Summit and talked to a few of Adobe’s customers, they were talking about 50% savings and what would be the creative cloud and maybe a little bit of the experience cloud products. And those were up 10% and 9% respectively.
And I’m really happy to see the Firefly images and different features getting used and AEP is nearing a billion dollars. I think I just expected more, when I looked at all these and maybe I need to get back on the ground and say, “Okay, their biggest customers are enterprises. Enterprises are slow.” I do know, when it came to Document Cloud with Adobe, I paid my nine extra dollars a month to get their AI features and it was so instant, I did it almost instantly. They gave it to me for free for a couple of weeks and they pounded it and I paid the money.
So, is AI kicking in for Adobe? It’s hard to tell right now. And the company doesn’t make it easy to parse that financially. Adobe is very similar to me, like Apple, they have this gigantic installed base. They don’t have to be first, but interestingly enough with some of their key features like Firefly, they were nearly first right up there. They have things like video that they need to work on with generative AI, that’s on the road map. We haven’t seen a lot of details around that, but I have to tell you, I just think the enterprise are going to jump on this. They see a cost savings capability through not only the content pipeline, but all the way through social media and commerce. So it’s going to kick in, can’t tell you when.
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.
