Adobe "explodes," the monetization of AI has a long way to go

Due to Adobe's fiscal year 2025 performance guidance announced yesterday falling short of expectations, the company's stock price dropped over 9% in after-hours trading. HSBC believes that Adobe prioritizes the promotion and popularization of its AI products rather than AI monetization, a strategy that may take more time to yield significant financial impacts. On Wednesday after the U.S. stock market closed, Adobe released its fourth-quarter earnings report, with revenue, net income, and adjusted earnings per share (EPS) all exceeding market expectations. However, this performance did not quell market concerns about its long-term growth prospects, as Adobe's guidance for fiscal year 2025 and the first quarter of that fiscal year was significantly below analyst expectations, leading to a sharp decline in its stock price after hours, including: Revenue: Expected revenue for fiscal year 2025 is $23.4 billion, below analyst expectations of $23.8 billion. Earnings per Share: EPS is expected to be between $20.20 and $20.50, below analyst expectations of $20.52. On the same day, HSBC analysts Stephen Bersey, Abhishek Shukla, and Govinder Kumar released a report stating that Adobe is struggling to effectively monetize its AI capabilities and lowered its target price from $536 to $510, maintaining a "Hold" rating. Yesterday, the company's stock closed at $549.93, indicating a potential decline of about 7.26%. Adobe stated in a conference call that management's top priority is to focus on the promotion and popularization of AI products while balancing AI product monetization. HSBC believes that this strategy may only drive moderate revenue growth. Although the company launched AI products in early 2024, the revenue growth rate over the past three fiscal years has remained at 10-11%, failing to achieve accelerated growth. Its fiscal year 2025 revenue guidance implies that revenue growth will slow down, with the growth rate declining to 9%, which is 1% lower than the consensus expectation prior to the earnings report. Analysts stated: "We believe Adobe is facing difficulties in effectively monetizing its AI capabilities, and the efforts made in AI have not led to an increase in revenue growth." Furthermore, early signs of AI monetization are not encouraging, while risks from competition continue to rise, leaving the prospects of its AI transformation uncertain. Since the beginning of this year, Adobe's stock has fallen by 5.2%, underperforming the software industry index, which has risen by over 30%. Investors have repeatedly expressed concerns that AI-based creative tools from companies like OpenAI or Runway AI may capture Adobe's market share HSBC believes that the intense competition in the Adobe creative products sector may quickly commoditize its products and weaken its competitive advantage