Q3 2024 Summary
Updated Jan 10, 2025, 5:10 PM UTC- Adobe is accelerating innovation with Adobe Express, integrating AI functionality natively into the platform, leading to rapid addition of capabilities at "breakneck speed".
- The company is significantly ramping up its go-to-market efforts, expanding its audience with Express for Teams, Enterprise, and Education, resulting in strong usage growth of 70% year-over-year, over 1,500 businesses sold, and their best back-to-school season ever with millions of students enabled.
- Adobe continues to invest in long-term growth initiatives like training AI models, Adobe Express, and GenStudio while delivering "phenomenal margins", effectively balancing growth and profitability.
- Adobe plans to "pour more gas" on investments in marketing and go-to-market strategies for Adobe Express, indicating ongoing high expenses without immediate margin expansion.
- The company's focus on reaching a "net new audience" requires significant spending on traditional and social media campaigns, which may not yield immediate returns.
- Despite existing substantial investments, Adobe acknowledges the need to "continue to make those trade-offs in terms of growth and profitability", potentially pressuring margins in the future.
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Digital Media ARR and Q4 Guidance
Q: What drove the unseasonable strength in Digital Media ARR, and why is Q4 guidance the lowest sequentially?
A: The unseasonable strength in Digital Media ARR was driven by strong performance in Document Cloud, with Acrobat and AI Assistant performing well. Creative Cloud also showed growth due to higher-value offers and AI innovation. The Q4 guidance is the highest target we've ever issued for a Q4, but the sequential guide appears lower because a few deals that historically closed in Q4 closed earlier in Q3. Additionally, Cyber Monday falls into Q1 this year, affecting seasonality. -
ARR Growth and Competition Impact
Q: Will consumption contribute to ARR growth in FY '25 considering competition's impact on monetization?
A: We believe our unique combination of apps and AI models, including Firefly Services, will drive ARR growth through increased consumption. Our offerings are differentiated by commercial safety and integration with our tools. We see real traction in enterprise adoption and are confident in our ability to monetize AI features despite competition. -
AI Monetization: Image vs Video Models
Q: How does the AI monetization opportunity in image models compare to future potential in audio and video models?
A: We have developed a broad set of models for the creative community, differentiated by quality and integration. With each new capability, total generative credits consumed increase. Video models will be monetized differently, potentially through premium AI plans, and we are excited about innovations in video, which are a game changer. -
Document Cloud Pricing and Subscription Transition
Q: Are there pricing headwinds or tailwinds in Document Cloud, and how is the transition to subscription progressing?
A: Document Cloud continues to perform well, with the rise of PDF becoming the de facto standard increasing its value. We have focused on consumption with AI Assistant and are adding new features like support for multidocs and multiple formats. Document Cloud is substantially a subscription business, and with AI Assistant available to subscribers, we expect the transition to continue. -
Go-to-Market Investments and Margins
Q: Will you continue to accelerate go-to-market investments, or will you begin to taper off to leverage revenue growth and margin expansion?
A: We are ramping up go-to-market investments for Adobe Express, focusing on awareness campaigns and leveraging social media. We have seen strong usage growth of 70% year-over-year and plan to pour more resources into marketing to reach new audiences. We believe this investment is balanced with delivering strong margins. -
Digital Experience Business and Q4 Outlook
Q: What is the strength and underlying dynamics in the Digital Experience business heading into Q4?
A: We are pleased with the execution in Digital Experience, with opportunities in personalization at scale for both B2C and B2B companies. Enterprises are scrutinizing deals but see value in our offerings for growth and efficiency gains. Our focus is on the subscription business, which continues to grow strongly. -
Guidance Factors and End Demand
Q: Is there anything else you're seeing different in end demand affecting guidance?
A: We continue to see strong momentum in the business with no changes in business dynamics. The last few weeks of Q3 showed traditional strength, and we are excited about upcoming innovations to be announced at MAX.