Adobe (ADBE, Financial) experienced a significant drop in its stock price, falling 14% despite surpassing earnings per share (EPS) expectations for the first quarter (February). This marks the sixth consecutive quarter where Adobe has reported double-digit EPS growth, following four quarters of smaller gains. The company's revenue increased by 11.3% year-over-year to $5.18 billion, exceeding forecasts and marking the first time Adobe has achieved over $5 billion in revenue for two consecutive quarters, with a third anticipated in Q2.
However, Adobe's guidance for the second quarter (May) did not meet expectations, particularly concerning the mid-point of revenue projections and the anticipated growth in Digital Media Annual Recurring Revenue (ARR). Despite surpassing its Q1 guidance with a net new Digital Media ARR of $432 million, the Q2 forecast of approximately $440 million fell short of a more significant sequential improvement hoped for by analysts. Additionally, Adobe did not update its full-year guidance for Digital Media net new ARR, maintaining it at $1.90 billion despite the Q1 performance.
The company's Digital Media segment saw a 12% year-over-year revenue increase to $3.82 billion, outperforming the expected range. This segment is Adobe's largest, closely monitored by investors. The Digital Experience segment also showed strong performance, with a 10% year-over-year revenue growth to $1.29 billion, aligning with the higher end of Adobe's guidance.
Adobe highlighted the success of Acrobat Web in customer acquisition, with a 70% increase in monthly active users year-over-year, surpassing 100 million users in Q1. Creative Cloud remains a popular choice among creators, and Adobe Express has attracted millions of users with its ease of use. Additionally, Adobe has made significant strides in integrating its generative AI model, Adobe Firefly, into its flagship Creative Cloud applications and Adobe Express.
Despite the strong Q1 results, investor concerns primarily revolve around Adobe's guidance, particularly the expectations for Digital Media net new ARR in Q2 and the overall revenue forecast. This marks the second consecutive quarter where Adobe's guidance has disappointed investors. On a positive note, Adobe announced a new $25 billion stock repurchase authorization, representing over 10% of its current market capitalization, which could signal management's confidence in the company's value.
