Adobe surprises with mixed quarterly outlook – Analyst urges calmness

Adobe's shares recently came under pressure after the company released its fourth-quarter forecast, which failed to meet investors' expectations for returns from AI investments. Despite the disappointing outlook, Adobe exceeded earnings expectations for the third fiscal quarter. Alex Zukin, Managing Director and Head of Software Research at Wolfe Research, stated in the 'Morning Brief' that the investors' reaction to Adobe’s fourth-quarter outlook was an 'overreaction': 'Some deals expected for the fourth quarter were already closed by the end of the third quarter. Looking at the past year, the forecast for the second half remains unchanged.' He is convinced that Adobe will be one of the best ways to monetize AI investments in the enterprise segment in the future. Zukin expects Adobe to show accelerated growth and improved margins in the coming quarters. He emphasized that nothing has changed in Adobe’s fundamental business metrics. For the targeted gains from AI investments, Adobe's digital media business must show the greatest effects. 'Adobe’s portfolio, including generative credits in Photoshop and Illustrator, as well as new product launches, will be presented at the annual MAX conference. These innovations could help unlock additional monetization opportunities in the enterprise segment,' Zukin added. Although most companies in the enterprise software sector are, according to Zukin, still relatively early in their journeys with generative AI, Adobe is significantly more advanced. 'I would place Adobe directly behind Microsoft in terms of the ability to demonstrate a real disruptive ROI. Customers can achieve accelerated content speed and creation through the integration of generative functionalities into their creative workflows, and that at significantly lower costs,' Zukin explains. This situation is thus a 'win-win' for Adobe's customers.