Why Adobe Stock Crashed 12% After Earnings

Adobe Inc. (ADBE) shares plummeted 12% in extended trading on Thursday, despite reporting strong fiscal Q4 2024 results, as investors reacted to the company's guidance for fiscal 2025. The software giant's stock decline can be attributed to a combination of factors, including a disappointing revenue outlook and concerns about AI disruption and competition from startups.

Adobe reported revenue of $5.61 billion in its fourth quarter, representing 11% year-over-year growth, and earnings per share (EPS) of $4.81, surpassing analysts' expectations. However, the company's guidance for fiscal 2025 fell short of Wall Street's projections. Adobe forecast revenue of $23.30 billion to $23.55 billion and EPS of $20.20 to $20.50, compared to analysts' estimates of $23.8 billion and $20.53, respectively.

The company's net new Digital Media Annualized Recurring Revenue (ARR) growth of 11% year over year may have also disappointed investors, given Adobe's historical growth rates. Additionally, Adobe's first-quarter fiscal 2025 guidance for revenue of $5.63 billion to $5.68 billion also fell short of analysts' projections of $5.7 billion.



Concerns about AI disruption and competition from startups also played a significant role in Adobe's stock price decline. The company has been integrating AI into its products, such as embedding its proprietary model, Firefly, into applications like Photoshop. However, investors may be worried that emerging AI-based startups could take market share from Adobe.

Adobe's stock has fallen 7.8% this year, lagging behind software peers and industry benchmarks. Investors have voiced recurring anxieties that AI-based creative tools from firms like OpenAI or Runway AI could take market share from Adobe. While company executives and customers tout the value of Adobe's new AI tools, "investors aren't feeling that excitement," according to Keith Weiss, an analyst at Morgan Stanley.



In conclusion, Adobe's stock price decline of 12% after earnings can be attributed to multiple factors, including a disappointing revenue outlook and concerns about AI disruption and competition from startups. The company's guidance for fiscal 2025 fell short of Wall Street's projections, and its net new Digital Media ARR growth may have disappointed investors. As Adobe continues to integrate AI into its products, investors will be watching closely to see how the company addresses these concerns and maintains its competitive edge in the face of emerging AI-based startups.