Adobe's fiscal second quarter revenue showed double-digit growth across its digital media and digital experience units. Adobe has been busy embedding generative AI technologies such as Firefly throughout its products.
The company reported second-quarter net income of $1.3 billion, or $2.82 a share, on revenue of $4.82 billion, up 10% from a year ago. Non-GAAP earnings in the second quarter were $3.91 a share.
Wall Street was expecting Adobe to report second quarter non-GAAP earnings of $3.79 a share on revenue of $4.77 billion.
Adobe Firefly heads to enterprises, Adobe Express
Adobe CEO Shantanu Narayen said demand was strong across Creative Cloud, Document Cloud and Experience Cloud. In prepared remarks, Narayan said "every disruptive technology has presented exciting opportunities" including cloud and mobile. Generative AI represents another shift for Adobe.
Narayen said:
“Our generative AI strategy focuses on data, models and interfaces. Our rich datasets across creativity, documents and customer experiences enable us to train models on the highest quality assets. We will build foundation models in the categories where we have deep domain expertise, including imaging, vector, video, documents and marketing. We are bringing generative AI to life as a co-pilot across our incredible array of interfaces to deliver magic and productivity gains for a broader set of customers. Since its launch in March, Firefly has captured the imagination of the world with over half a billion generations, and we’re just getting started.”
By business unit:
- Digital Media revenue was $3.51 billion, up 10% from a year ago. Within Digital Media, Creative Cloud revenue was $2.85 billion, up 9%. Document Cloud revenue was $659 million, up 11% from a year ago.
- Digital Experience revenue was $1.22 billion, up 12% from a year ago.
As for the outlook, Adobe projected third quarter revenue between $4.83 billion to $4.87 billion with non-GAAP earnings of $3.95 a share to $4 a share.
For fiscal 2023, Adobe is projecting revenue of $19.25 billion to $19.35 billion. Digital Media revenue is expected to deliver annual revenue of $14.1 billion to $14.15 billion with Digital Experience generating revenue of $4.85 billion to $4.9 billion.
Adobe projected non-GAAP fiscal 2023 earnings of $15.65 a share to $15.75 a share.
Narayen said that Creative Cloud and Document Cloud will end fiscal 2023 above expectations and Digital Experience will be slightly below projections due to "the current enterprise spend environment."
Anil Chakravarthy, President of Digital Experience, said: "While overall demand is strong and win rates remain healthy, as we enter the second half, we are seeing some projects being pushed out in the current enterprise spend environment, which we have reflected in our updated annual targets."
How Adobe will monetize generative AI
David Wadhwani, President of Digital Media at Adobe, said in prepared remarks that generative AI is a seminal moment in the company's history and will provide multiple ways to monetize.
Wadhwani said:
"Our generative AI offerings represent additional customer value as well as multiple new monetization opportunities. First, Firefly will be available both as a standalone freemium offering for consumers as well as an enterprise offering, announced last week. Second, co-pilot generative AI functionality within our flagship applications will drive higher ARPUs and retention. Third, subscription credit packs will be made available for customers who need to generate greater amounts of content. Fourth, we will offer developer communities access to Firefly APIs and allow enterprises the ability to create exclusive custom models with their proprietary content. And finally, the industry partnerships, as well as Firefly, represent exciting new top-of-funnel acquisition opportunities for Express, Creative Cloud and Document Cloud. Our priority for now is to get Firefly broadly adopted, and we will introduce specific pricing later this year."
Liz Miller's take
Here's what Constellation Research analyst Liz Miller had to say about Adobe's results.
"What makes Adobes path so interesting is that while yes, they are advancing everything from GenerativeAI to automation and data...they are applying all of it in service of business growth. All the things that people for a millennia have mocked about marketing...the creativity, the storytelling, the feelings and empathy...is now being super powered with AI, workflows and massive pools of data to be harnessed, enterprise ready and meaningful to customer engagements. And...for Adobe...is delivering consistent double digit growth for investors.
The next phase of Adobe's growth will also be fun to watch as they open new markets like advancing digital product development and management. With new advances in Adobe Express they are inviting a whole new generation of creators into Adobe. The cautionary note will be to ensure that the Digital Engagement Cloud keep innovating and moving forward. Even in difficult markets and headwinds, the "3rd cloud" needs to keep that foot on the gas with investment into evolving marketing, engagement and growth.
And for anyone who has played with the Beta of Adobe Firefly...looking into the future of creativity...it's pretty exciting. (And yes, I've generated an image of what my dog, and Akita, would look like in a chunky knit purple sweater, sunglasses and a gold chain.)
