Adobe Reports Q4 2024 Earnings: A Strong Quarter but Lackluster Outlook

Adobe (ADBE) announced its fourth-quarter fiscal 2024 non-GAAP earnings, coming in at $4.81 per share. This figure surpassed the Zacks Consensus Estimate by 3.22% and marked a 12.6% increase from the previous year.

Throughout the past four quarters, ADBE has consistently exceeded Zacks’ earnings expectations, showing an overall average surprise of 2.59%.

Check out the latest EPS estimates and surprises on Zacks Earnings Calendar.

Adobe’s total revenues for the quarter reached $5.61 billion, beating forecasts by 1.24% and growing 11.1% year-over-year on both a reported and constant currency basis.

However, shares of ADBE dropped more than 10% in pre-market trading, due to a concerning outlook for fiscal 2025, even as the Digital Media and Digital Experience segments performed well.

Understanding Adobe’s Revenue Growth

In the breakdown of revenues, subscriptions accounted for a significant $5.37 billion, representing 95.7% of total revenues. This shows a year-over-year increase of 12.6%. In contrast, product revenues fell to $81 million (1.4% of total revenues), a decline of 28.9% from last year. Meanwhile, services and other revenues totaled $160 million (2.9% of total revenues), marking a 6.4% decrease year-over-year.

The Digital Media segment brought in $4.15 billion, a 12% rise from last year, and exceeded the Zacks Consensus Estimate by 0.92%.

Additionally, revenues from the Digital Experience segment hit $1.40 billion, also improving by 10% year-over-year, and topped consensus expectations by 1.7%.

Diving Deeper into Digital Media Performance

The Digital Media segment, which includes Creative Cloud and Document Cloud, saw substantial growth. Adobe reported that Creative Cloud generated revenues of $3.3 billion, up 10% year-over-year. This metric beat the Zacks Consensus Estimate by 1.13%.

Recent innovations in Adobe’s Generative AI (GenAI) portfolio, including the Firefly Image Model 3 and enhancements to existing models, have positively impacted its tools such as Lightroom and Photoshop. Notably, cumulative Firefly generations have now surpassed 16 billion.

Adobe Express has gained traction, with adoption among businesses increasing to 4,000 in the reported quarter. Student usage surged, rising 84% year-over-year. The product’s integration with popular platforms like ChatGPT, Google, and Slack has broadened its reach.

The company welcomed notable clients such as Alphabet, American Express, and T-Mobile into its Creative Cloud ecosystem during the quarter.

Document Cloud revenues rose to $843 million, up 17% from last year, although this figure just missed the consensus by 0.01%.

Adobe’s AI Assistant is now integrated into various platforms, allowing for an impressive 25% rise in monthly active users to over 650 million.

Key additions to the Document Cloud clientele included Abbott Laboratories and Kaiser Permanente.

The Digital Media segment finished the quarter with annualized recurring revenues (ARR) of $17.33 billion, which includes a net new ARR of $578 million.

An Insight into the Digital Experience Segment

Experience Cloud subscription revenues were reported at $1.27 billion, reflecting a 13% year-over-year increase. Adobe’s adoption of customer experience management solutions continues to grow, supported by its Experience Platform’s AI Assistant for marketers.

The introduction of Adobe GenStudio aims to streamline the content supply chain, further fueling demand for Adobe’s services.

Additionally, Adobe’s partnership with Amazon has made its Experience Platform accessible via Amazon Web Services, offering enhanced capabilities to clients.

Financial Health and Operations Overview

Adobe’s GAAP gross margin for Q4 2024 stood at 89%, an improvement of 160 basis points year-over-year. Operating expenses rose to $3.03 billion, up 13.6% from last year, with the operating margin adjusted at 46.3%, slightly down from the previous year.

Outlook for Q1 and FY25

Looking ahead, Adobe forecasts total revenues for Q1 fiscal 2025 to range from $5.63 billion to $5.68 billion. The Zacks Consensus Estimate currently stands at $5.73 billion, indicating a growth of 10.49% compared to the same period last year.

The company anticipates Digital Media revenues between $4.17 billion and $4.20 billion, while Digital Experience segment revenues are expected between $1.38 billion and $1.40 billion. Experience Subscription revenues are forecasted in the $1.27 to $1.29 billion range.

For the first quarter, non-GAAP earnings are expected to fall between $4.95 and $5. The consensus estimate is currently pegged at $4.95 per share, signaling a growth rate of 10.49% from one year ago.

As for fiscal 2025, Adobe anticipates total revenues between $23.30 billion and $23.55 billion, compared to $21.51 billion reported in fiscal 2024. However, adverse foreign exchange rates and ongoing subscription transitions may impact overall performance.