• Q4 Revenue: $5.61 billion, 11% year-over-year growth.
• FY24 Revenue: $21.51 billion, 11% year-over-year growth.
• GAAP EPS (FY24): $12.36, 5% year-over-year growth.
• Non-GAAP EPS (FY24): $18.42, 15% year-over-year growth.
• Digital Media Revenue (Q4): $4.15 billion, 12% year-over-year growth.
• Digital Media Net New ARR (Q4): $578 million.
• Document Cloud Revenue (Q4): $843 million, 17% year-over-year growth.
• Document Cloud Net New ARR (Q4): $173 million.
• Creative Revenue (Q4): $3.30 billion, 10% year-over-year growth.
• Creative Net New ARR (Q4): $405 million.
• Digital Experience Revenue (Q4): $1.40 billion, 10% year-over-year growth.
• Digital Experience Subscription Revenue (Q4): $1.27 billion, 12% year-over-year growth.
• Cash Flows from Operations (Q4): $2.92 billion.
• RPO (End of FY24): $19.96 billion.
• Cash and Short-term Investments (End of Q4): $7.89 billion.

• Warning! GuruFocus has detected 4 Warning Sign with CGNT.

Release Date: December 11, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Adobe Inc (NASDAQ:ADBE) achieved record revenue of $21.51 billion for FY24, representing 11% year-over-year growth.
• The company reported strong growth in its Digital Media business with net new ARR of $578 million in Q4.
• Adobe's AI innovations, including the Firefly family, have driven significant customer adoption, with Firefly-powered generations surpassing 16 billion.
• The Document Cloud segment saw a 17% year-over-year revenue growth, with a record net new ARR of $173 million.
• Adobe Experience Platform and native apps surpassed $1 billion in the book of business, with 48 of the Fortune 100 companies leveraging these solutions.

Negative Points

• Despite strong innovation, Adobe Inc (NASDAQ:ADBE) faces challenges in accelerating growth, with some investors concerned about the lack of acceleration in Digital Media net new ARR.
• The company anticipates a $200 million revenue headwind in FY25 due to foreign exchange effects and the transition from perpetual to subscription offerings.
• There is a perceived pricing sensitivity in the market, particularly at the lower end, which may impact Adobe's ability to leverage pricing as a growth driver.
• The stock has been a major underperformer year-to-date, indicating investor concerns despite the company's reported successes.
• Adobe's guidance for FY25 suggests a deceleration in growth, raising questions about potential leaks in the growth equation or market share losses.

Q & A Highlights

Q: Can you expand on the adoption curves for newer, higher-priced Firefly offerings and how these are integrated into GenStudio? A: David Wadhwani, President of Digital Media Business, explained that AI has been a significant focus, with 16 billion generations achieved. Adobe's AI models are commercially safe, offer user control, and are integrated into flagship applications. The introduction of the Video Model will allow for further tiering of Creative Cloud offerings. Firefly Services are being used by companies like Tapestry and Pepsi for scaled content production. AI Assistant for Acrobat is also gaining traction. Daniel Durn, CFO, added that these innovations are meaningful contributors to financial performance and are factored into the FY25 forecast.

Q: How do you see growth from Firefly and GenStudio impacting net new Digital Media ARR? A: David Wadhwani stated that the growth algorithm for Digital Media includes new users, new products, and value pricing. New users and products will be significant growth drivers in FY25. Firefly Services and GenStudio are expected to drive personalization and scaled content production. Daniel Durn emphasized that the focus is on revenue and EPS, with ARR growth being a key indicator of business health.

Q: Is there pricing sensitivity in driving new user adoption, and how does it affect growth? A: David Wadhwani noted that Adobe balances proliferation with short-term monetization. There is price sensitivity at the lower end of the market, especially with freemium users. In the core business, new value introduction allows for more segmentation and tiering. In enterprises, Adobe focuses on automation and workflows, balancing proliferation and monetization.

Q: How durable is the growth in Document Cloud, and what are the key drivers? A: David Wadhwani highlighted that PDF is the de facto standard for unstructured data, and Adobe is the most trusted provider. Growth is driven by monthly active users and converting free users to paid. AI Assistant adds significant value, allowing conversations with multiple documents. Shantanu Narayen added that rolling out AI Assistant in multiple languages and verticals will enhance Acrobat's value.

Q: How will Firefly Services integration into core franchises affect conversion activity? A: David Wadhwani explained that Firefly is leveraged across many products, including Express, Lightroom, and core Creative applications. It aids in new user acquisition and conversion, with strong adoption in education and businesses. Firefly's commercial safety is a key differentiator. Generative AI enhances onboarding and retention, driving conversion throughout the funnel.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.