Adobe shares slump as AI software competition hits earnings forecast

Shares of Adobe fell over 8 per cent in premarket trading on Friday, after the Photoshop maker's disappointing quarterly earnings forecast sparked fears that returns from its push towards artificial intelligence design will take longer to materialize.

As one of the world's largest software companies, Adobe has been heavily investing in AI image and video generation to maintain its top spot in the design software industry amid rising competition from well-funded startups like Stability AI and Midjourney.

The company on Thursday projected fourth-quarter revenue between $5.50 billion and $5.55 billion, while analysts polled by LSEG expected $5.61 billion.

Excluding items, quarterly profit is expected to be between $4.63 and $4.68 per share, compared with estimates of $4.67 per share.

If current losses hold, Adobe is set to lose more than $21 billion in market value.

The company's shares have fallen nearly 2% this year after rising over 77% in 2023.

Despite guiding fourth-quarter revenue below estimates, Adobe said it expects to surpass its expectations for annual net new annual recurring revenue (NNARR), signaling that adobe's subscription sign ups remain healthy.

"Adobe remains on track to deliver Creative Cloud NNARR year-on-year growth in Q4 and is one of the rare software companies that is growing net-new bookings," JP Morgan analysts said in a note.

The company said in June that it expects strong growth in the second half of the year, but the weak forecast indicates that the buying environment remains pressured.

"We think that in the short term there lacks a clear catalyst for the stock, unless Adobe can somehow do a good job convincing investors of stronger growth next year," Bernstein analysts said.