Adobe forecasts below-estimate FY25 revenue on slower subscription spending

Photoshop maker Adobe forecast fiscal 2025 revenue below Wall Street estimates on Wednesday, suggesting the company's investments to weave AI into its software applications were taking longer than expected to bear fruit. 

Shares of the San Jose, California-based company fell nearly 9% in extended trading. The company forecast annual revenue for 2025 between $23.30 billion and $23.55 billion, compared with estimates of $23.78 billion, according to data compiled by LSEG. 

Adobe is making significant investments in AI-driven image and video generation technologies in response to the growing competition from well-capitalized startups such as Stability AI and Midjourney. 

Although Adobe projected strong growth for the second half of the year in June, its forecast on Wednesday indicated the company was still struggling to monetize its AI push. 

"While the market's initial fears about AI disruption have subsided, Adobe's continued lack of AI monetization makes it increasingly difficult to pick them as a clear AI winner," said Charlie Miner, analyst at Third Bridge. 

The company's advancements into video-generation technology put it head-to-head with ChatGPT maker OpenAI, which boasts its own model, Sora. 

Adobe expects foreign exchange volatility and its shift towards subscriptions to cut into its fiscal 2025 revenue by about $200 million. 

However, DA Davidson analyst Gil Luria said the company is well-positioned to benefit from a return of enterprise spending, including from AI. 

"Adobe's image and video AI generation capabilities are getting broad adoption, which should continue to grow as the models get better," Luria said. 

Last month, the company added software tools that let customers use AI to create images based on Adobe's library of stock images. 

It forecast first-quarter revenue between $5.63 billion and $5.68 billion, which fell short of estimates of $5.73 billion. Adobe's fourth-quarter revenue rose 11% to $5.61 billion from a year ago, beating market expectations of $5.54 billion. 

On an adjusted basis, the company earned $4.81 per share, compared with estimates of $4.66.