Adobe's ($ADBE) capability to monetize its artificial intelligence products in the near future is seen as challenged by increasing competition and pricing pressures, as outlined by UBS Securities in a note shared Thursday. On Wednesday evening, the software giant reported fiscal fourth-quarter results that exceeded market expectations.
However, its outlook for 2025 did not meet forecasts, with the company projecting a full-year digital media ending annualized recurring revenue to grow by 11% year-over-year. The annual recurring revenue outlook does not indicate any 'clear' AI upswing, noted UBS analysts Karl Keirstead and Seth Gilbert in their client communication.
The firm is attempting to monetize AI in fiscal 2025 through new designated AI tiers rather than overarching price increases, which had been anticipated by its investors, the analysts elaborated. Adobe's stock fell nearly 14% in late trading on Thursday. The company is making 'aggressive' investments in AI products, stated Chief Financial Officer Dan Durn during an earnings conference call late Wednesday, as per a FactSet transcript.
'New AI releases including Express, Acrobat AI Assistant, Firefly Services, DX premium tiers and GenStudio for Performance Marketing have broadened our product portfolio, facilitating the spread and substantial monetization of GenAI,' said Durn. Adobe is preparing to introduce a new, higher-priced Firefly offering that integrates its video models as 'a comprehensive AI solution' for creative professionals, which might enable the company to monetize a new user base, according to David Wadhwani, president of the digital media division, speaking to analysts. 'Adobe has been promoting an AI narrative for the past two years, yet we still observe no signs of monetization,' remarked Keirstead and Gilbert.
'Adobe remains hesitant to adjust AI pricing at the lower end and will focus on user adoption and engagement instead.' UBS has lowered its price target for Adobe's stock from $550 to $525 while holding its neutral rating. 'In summary, the stock seems to quickly reflect the view that Adobe is grappling with competition and pricing pressures that impair its ability to monetize AI products in the short term,' wrote the analysts. Price: 473.70, Change: -76.23, Percent Change: -13.86 $ADBE.