The financial report was below expectations, and the market is concerned that the advantages of AI have "almost disappeared," leading to a sharp decline in Adobe's after-hours trading

Adobe's revenue and profit both achieved growth in the first quarter, but the slowdown in the digital media department's growth and performance guidance falling short of expectations raised market concerns.

On March 12 local time, Adobe announced its financial performance for the first quarter of fiscal year 2025 (ending February 28). Although Q1 overall performance was strong, with revenue and earnings per share hitting new highs.

However, due to the slowdown in the annualized recurring revenue growth of Adobe's main digital media business, concerns arose among investors about the company losing its AI advantage, leading to a drop of 14% in the company's stock price in after-hours trading.

Revenue hits a new high, profit nearly doubles year-on-year, but performance guidance falls short of expectations

The main financial data for Adobe's first quarter of fiscal year 2025 is as follows:

Revenue: Total revenue for the first quarter reached $5.71 billion, a record high, with a year-on-year growth of 10%, exceeding analysts' expectations of $5.66 billion. Non-GAAP earnings per share were $5.08, surpassing analysts' expectations of $4.97 per share.

Profit: The company's net profit reached $1.81 billion, a significant year-on-year increase of 192%.

Cash Flow: Free cash flow set a record of $2.48 billion, exceeding market expectations by approximately $469 million, marking the second consecutive quarter of significantly exceeding free cash flow expectations.

Despite the overall strong performance in Q1, Adobe's performance guidance for the next quarter and the current fiscal year did not fully meet market expectations.

The financial report indicated that Adobe expects total revenue for fiscal year 2025 to be between $23.3 billion and $23.55 billion, with expected revenue for the second quarter between $5.77 billion and $5.82 billion.

Slowdown in digital media business growth raises doubts about AI transformation progress

Notably, Adobe disclosed for the first time the performance of its "AI-first independent and ancillary products."

The financial report showed that in Q1, businesses including the Acrobat AI Assistant, Firefly applications and services, and GenStudio generated over $125 million in revenue, expected to double by the end of fiscal year 2025.

Adobe stated that its generative AI innovations are impacting billions of dollars in ARR (annual recurring revenue), involving customer acquisition, customer retention, and value expansion; the usage of the Firefly application continues to grow, and new pricing models are being explored.

As a revenue pillar for Adobe, the digital media department achieved revenue of $4.23 billion this quarter, a year-on-year growth of 11%, but ARR grew by 12.6% year-on-year, slightly slowing compared to previous growth rates, ending four consecutive quarters of expansion.

This raised concerns among investors about Adobe's position in the AI field, fearing it may lose its first-mover advantage Morgan Stanley analyst Keith Weiss stated:

"The new disclosures regarding the contributions of generative AI are a step in the right direction, but investors want to see a 'clearer roadmap.'"

JP Morgan, in its latest research report, stated that while the company's disclosures in the AI field have increased, which is a "positive signal," the market's excessive focus on ARR may lead to stock price volatility, and it is recommended that Adobe simplify its disclosure approach.

In the long term, JP Morgan remains optimistic about Adobe's business model and brand recognition, maintaining a positive outlook on its competitiveness in the software sector and the resilience of related businesses.

In response to market skepticism, Adobe CEO Shantanu Narayen stated in a media interview:

"We are not only integrating AI into existing products and providing value, but it is also clear that the innovations we offer are creating new revenue streams."