Adobe Beats Earnings Across the Board — Why Did Shares Only Rise 2%?

TradingKey - On September 11 (U.S. Eastern Time), software giant Adobe（ADBE.US） released its fiscal third-quarter 2024 results, delivering strong beats on all key metrics. The stock initially surged 8% in after-hours trading, but quickly pared gains to close up just 2.77%, reflecting cautious market sentiment.

Adobe reported:

• Revenue of $5.99 billion, up 11% year-over-year, exceeding expectations.
• Adjusted EPS of $5.31, above the consensus forecast of $5.18.

The company also raised its full-year guidance for the second time, now projecting annual revenue between $23.65 billion and $23.7 billion.

The standout highlight was progress in AI. CEO Shantanu Narayen announced that AI-driven products have generated over $5 billion in annualized recurring revenue (ARR) — a clear signal that Adobe’s AI strategy is moving from innovation to commercialization.

As a leader in creative software, Adobe has deeply integrated its Firefly generative AI model into core products like Photoshop and Illustrator, significantly enhancing user experience and engagement.

However, despite this AI milestone, competitive pressures are intensifying. Rivals both old and new — including Meta and other tech giants — are rapidly embedding AI features into their platforms, threatening Adobe’s dominance.

The sharp pullback in share price after the initial surge reflects investor caution. Keith Weiss, analyst at Morgan Stanley, noted that while the results were solid, the real concern is whether Adobe can convert technological leadership into sustained profit growth.

David Wagner, Portfolio Manager at Aptus Capital Advisors, said: “Adobe needs to prove it can compete and innovate — and the only way to do that is through continued growth, not just this quarter, but over the next several years.”

Overall, an 11% revenue growth rate is solid but not exceptional for a tech company. Adobe is clearly on the right path in its transformation — but to reestablish a durable moat in the AI era, one strong quarter won’t be enough.