Adobe Tumbles as FY25 Guidance Falls Short Despite Strong AI-Driven Q4

Adobe shares fell 12 percent following the release of fiscal year 2025 guidance that disappointed investors despite a strong finish to fiscal year 2024. While the company’s fourth-quarter performance surpassed expectations, fueled by robust demand for AI-enabled tools, its tepid forward outlook raised concerns about slowing growth and market headwinds.

For the fourth quarter, Adobe delivered adjusted earnings per share of $4.81, exceeding its own guidance and marking over 20 consecutive quarters of earnings beats. Revenue grew 11.1 percent year-over-year to $5.61 billion, also surpassing company forecasts.

The Digital Media segment, which includes Adobe’s Creative Cloud and Document Cloud services, performed particularly well, growing 12 percent year-over-year and adding $578 million in net new annualized recurring revenue (ARR), exceeding expectations.

Creative Cloud revenue climbed 10 percent to $3.30 billion, driven by demand across mobile, desktop, and streaming platforms. Document Cloud revenue surged 17 percent to $843 million, with monthly active users rising 25 percent to over 650 million. Adobe’s Digital Experience segment, which provides customer analytics and engagement tools, grew revenue by 10 percent to $1.40 billion, with subscription revenue increasing 12 percent.

Adobe credited much of its strong Q4 performance to advancements in AI. Tools like AI Assistant, which significantly accelerates document-related tasks, and Firefly Services, part of Adobe GenStudio, have gained traction. The company noted that Firefly generations surpassed 16 billion, highlighting the widespread adoption of its AI innovations.

Despite this momentum, Adobe’s fiscal year 2025 guidance failed to meet investor expectations. The company projected adjusted EPS of $20.20 to $20.50 and revenue of $23.30 to $23.55 billion, both falling short of consensus estimates. Adobe attributed part of this shortfall to foreign exchange headwinds, which are expected to reduce FY25 revenue by approximately $200 million.

Another factor weighing on the outlook is Adobe’s focus on attracting new users, many of whom are more price-sensitive than its core professional user base. This shift may limit the company’s ability to generate higher-margin revenue in the near term, even as it broadens its addressable market.

The disconnect between Adobe’s strong Q4 performance and its subdued FY25 guidance has disappointed investors, particularly given the company’s emphasis on AI as a growth driver. Management highlighted AI’s role in bolstering FY24 results but failed to convince the market that this trend would continue at the same pace next year.

While Adobe’s fundamentals remain strong, with sustained growth in its core segments and widespread adoption of its AI tools, the projected deceleration in revenue growth has tempered enthusiasm. The stock’s sell-off reflects a recalibration of expectations as investors weigh the potential for slower growth against Adobe’s long-term prospects.

Looking ahead, Adobe faces challenges in managing foreign exchange volatility and expanding its user base without sacrificing margins. However, its leadership in creative software, document solutions, and AI-driven tools positions it well for long-term success.

Investors will closely monitor how effectively Adobe can translate its innovations into consistent revenue growth and whether its FY25 guidance proves conservative in light of ongoing demand for its products.