Adobe Inc (ADBE) delivered strong third-quarter results, surpassing Wall Street’s estimates for both revenue and earnings. However, the company’s stock took a hit after it issued a softer-than-expected fourth-quarter guidance, raising concerns about the impact of competition from smaller rivals and the speed of AI monetization in a challenging economic climate.
For the quarter ended August 30th, Adobe reported an 11% year-over-year (YoY) revenue increase, reaching $5.41 billion. This exceeded LSEG’s expectations of $5.37 billion. The company’s Digital Media segment, home to Creative Cloud subscriptions and the generative AI tool Firefly, saw an 11% YoY growth, generating $3.98 billion in sales. Within this segment, creative revenue climbed 10% YoY to $3.19 billion, while Document Cloud experienced an 18% YoY rise to $807 million. Total subscription revenue reached $5.18 billion, reflecting an 11% YoY growth.
The Digital Experience segment also performed well, reporting a 10% revenue increase to $1.35 billion. Net income surged to $1.68 billion, with adjusted earnings reaching $4.65, surpassing LSEG’s estimate of $4.53. Adobe’s strong cash-generation capabilities were evident, with the company bringing in $2.02 billion from operations.
Despite the positive third-quarter performance, Adobe adjusted its outlook for the remainder of the year, citing the tough economic environment. The company’s fourth-quarter revenue guidance, ranging between $5.5 billion and $5.55 billion, fell short of FactSet’s estimate of $5.6 billion. The Digital Media segment is projected to generate $4.09 billion to $4.12 billion in revenue, while the Digital Experience segment is expected to report revenue between $1.36 billion and $1.38 billion. Adjusted profit is anticipated to be between $4.63 and $4.68 per share.
Adobe’s continued integration of AI across its portfolio remains a key driver of its success. AI-powered enhancements, especially Firefly, have fueled increased customer engagement and retention across Creative Cloud, Document Cloud, and Experience Cloud. However, the less-than-optimistic forecast has raised concerns that the monetization of these AI gains might take longer than anticipated, particularly in the current challenging economic landscape.
