Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adobe Inc (ADBE, Financial) achieved record revenue of $5.41 billion in Q3 FY24, representing 11% year-over-year growth.
- GAAP earnings per share for the quarter was $3.76, and non-GAAP earnings per share was $4.65, representing 23% and 14% year-over-year growth, respectively.
- Strong performance across Creative Cloud, Document Cloud, and Experience Cloud, with significant advancements in AI integration.
- Adobe Inc (ADBE) surpassed 12 billion Firefly-powered generations across its tools, indicating strong adoption of AI solutions.
- Document Cloud revenue grew 18% year-over-year, with significant contributions from AI Assistant and Acrobat subscriptions.
Negative Points
- Q4 guidance for net new digital media ARR is the lowest sequentially for Q4, causing some investor concern.
- Despite strong Q3 performance, there are questions about the sustainability of growth into FY25.
- The US market showed some deceleration, which could be a potential area of concern.
- There are competitive pressures in the AI space, which may impact Adobe Inc (ADBE)'s ability to monetize AI features effectively.
- The shift of Cyber Monday into Q1 may impact Q4 performance metrics, adding some uncertainty to the quarter's results.
Q & A Highlights
Q: The quarter itself, particularly on the digital media ARR outlook, was very strong. What drove this unseasonable strength? Is it pricing, AI traction, and particularly, the Document Cloud net new ARR? And why is the Q4 guide the lowest it's ever been sequentially for Q4 on net new digital media ARR?
A: Shantanu Narayen (CEO): We had a strong quarter with Acrobat and AI Assistant performing well. Creative also showed growth. The Q4 guide is the strongest ever target for Q4. David Wadhwani (President, Digital Media): Document Cloud's strength is driven by link sharing and reader distribution across platforms. Creative Cloud has broader offerings and AI innovations. Some deals closed earlier in Q3, affecting the linearity between Q3 and Q4.
Q: Can you compare the AI monetization opportunity with image models relative to future potential with audio and video models? How optimistic are you about solving limitations with current video generation models?
A: David Wadhwani (President, Digital Media): We are developing a broad set of models for the creative community, focusing on quality, commercial safety, and integratability. Generative credits are being consumed more due to deeper integration into our tools. We are considering premium AI plans for video and other features. Shantanu Narayen (CEO): The integration with Premiere and custom models for video editing are game changers.
Q: Will consumption contribute to ARR growth in FY25? There are fears that competition may limit your ability to monetize from consumption or price.
A: Shantanu Narayen (CEO): Our apps and models are uniquely differentiated. Firefly services are off to a good start, and our core subscription models for products like Photoshop and Illustrator are strong. We see real traction with enterprises for custom models. David Wadhwani (President, Digital Media): Commercial safety is crucial for businesses, and we are very differentiated in this aspect.
Q: You're guiding net new ARR down 3% year over year in Q4. Does this imply a framework for next year's performance?
A: Shantanu Narayen (CEO): We expect record net new ARR in fiscal '24. The Q4 guidance is the highest target we've ever issued. Cyber Monday falls in Q1 this time, affecting Q4 performance. We will provide more color on fiscal '25 ARR at the December earnings call.
Q: Can you go deeper into the dynamics of the Document Cloud business? Are there any pricing headwinds or tailwinds?
A: David Wadhwani (President, Digital Media): The foundation of Acrobat and Reader distribution across platforms is strong. Generative AI adds value to unstructured content like PDFs. Link sharing increases engagement. AI Assistant supports multi-docs and multiple formats, driving more adoption. Document Cloud is already a strong subscription business.
Q: Could you update us on your go-to-market strategy for Adobe Express? Do you need to continually accelerate investments in go-to-market?
A: David Wadhwani (President, Digital Media): We have expanded our offer set with Express for individuals, teams, enterprise, and education. We are ramping our marketing efforts, focusing on awareness campaigns and social media. We are also leveraging direct sales and Adobe.com journeys. We will continue to invest in go-to-market activities.
Q: Can you talk about the strength and underlying dynamics in the digital experience business heading into Q4?
A: Anil Chakravarthy (President, Digital Experience): We have a big opportunity with personalization at scale. Enterprises are scrutinizing their spend but see value in our integrated platform for delivering personalized experiences. Our subscription business continues to grow strongly.
Q: Can you drill into the factors considered in the Q4 guide? Are you seeing any changes in end demand or softness?
A: Shantanu Narayen (CEO): We had a strong Q3 and continue to see momentum. The Q4 guide is based on typical seasonal trends. We are excited about upcoming events like Adobe MAX and our innovation roadmap.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
