{"id":1072,"date":"2023-10-14T17:41:52","date_gmt":"2023-10-14T17:41:52","guid":{"rendered":"https:\/\/connectwithfund.com\/markets\/adobe-shares-rising-on-new-generative-ai-services\/"},"modified":"2023-10-14T17:41:53","modified_gmt":"2023-10-14T17:41:53","slug":"adobe-shares-rising-on-new-generative-ai-services","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=1072","title":{"rendered":"Adobe Shares Rising On New Generative AI Services"},"content":{"rendered":"<div>\n<p>As an Adobe shareholder, I am pleased customers are finding value in the company\u2019s Generative-AI-powered services and curious about how much additional revenue growth those services will deliver.<\/p>\n<p>This week the Photoshop maker held its annual user conference, Adobe Max, at which it announced new AI services. Sadly, while predicting \u201canother really strong [November-ending] quarter,\u201d according to the <em data-ga-track=\"ExternalLink:https:\/\/www.wsj.com\/tech\/ai\/adobe-may-be-techs-biggest-ai-bet-yet-429f640f\">Wall Street Journal<\/em><em>, <\/em>Adobe neglected to satisfy my curiosity.<\/p>\n<p>Nevertheless, the company\u2019s shares have risen 5% since October 10 when Adobe Max kicked off and 66% since the start of 2023.<\/p>\n<p>In an October 11 interview with Anil Chakravarthy, President of Adobe\u2019s Digital Experience Business and Worldwide Field Operations, I learned more about some of the factors that would help me estimate Adobe\u2019s Generative AI revenue uplift.<\/p>\n<p>Here are the key findings:<\/p>\n<ul>\n<li><strong>Higher prices. <\/strong>In November Adobe is raising prices for its Creative Cloud \u2014 the company\u2019s graphic design, video editing, and photography software \u2014 \u201cby about 9% to 10%,\u201d <em data-ga-track=\"ExternalLink:https:\/\/www.cnet.com\/tech\/computing\/adobe-retrained-its-generative-ai-and-im-impressed-with-the-upgrade\/\">CNET<\/em><em> <\/em>reported. Sadly an Adobe spokesperson declined to specify its average usage fee \u201cas it can vary depending on the organization\u2019s size and expected usage.\u201d<\/li>\n<li><strong>Expansion of total addressable market. <\/strong>Adobe plans to share with analysts how much Generative AI will expand its TAM at its next analyst meeting, Chakravarthy said.<\/li>\n<li><strong>New use cases for existing products. <\/strong>Chakravarthy predicts a surge in the need for marketers to produce content to satisfy the demand of social media. He envisions Generative AI helping companies tailor their marketing messages to specific customers segments and sharing content to relevant social media such as Instagram and TikTok.<\/li>\n<li><strong>Dramatic increase in the number of users. <\/strong>Generative AI will make Adobe Analytics \u2014 a tool for tracking the effectiveness of marketing campaigns \u2014 and Experience Manager \u2014 a content and digital asset management service \u2014 easy to use for more people. \u201cWe think it will increase by five to 10-fold the number of people who can use these tools,\u201d Chakravarthy said.<\/li>\n<li><strong>Compelling boost in content creator productivity. <\/strong>New AI features in Photoshop could cut hours from the editing process and a forthcoming \u201cconversational\u201d version of its Acrobat software can read, analyze and create PDF documents. Mark Moerdler of Bernstein expects Adobe\u2019s AI tools to save users \u201chours of repetitive and mundane work,\u201d the <em>Journal<\/em> reported.<\/li>\n<\/ul>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>One risk to Adobe is the high costs to operate its Generative AI tools. Chakravarthy said Adobe\u2019s prices are less than the value its products deliver customers and the \u201chigh operating cost is offset by the pricing increase.\u201d<\/p>\n<p>Perhaps this helps explain why analysts \u201cexpect Adobe\u2019s adjusted operating margins to remain above 45% despite the high cost of powering AI services,\u201d the <em>Journal<\/em> reported.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">From Growth Through Acquisition To Product Innovation<\/h2>\n<p>This year\u2019s Adobe Max marks a return to the company\u2019s heritage of growth through internally-developed product innovation rather than through acquisition.<\/p>\n<p>While the company\u2019s 2022 user conference featured detailed financial projections and talk Figma \u2014 At $20 billion, Adobe\u2019s largest ever acquisition is 13 months into a regulatory review \u2014 this week\u2019s conference was light on financial details and long on vision, the <em>Journal<\/em> noted.<\/p>\n<p>Despite expectations of 10% revenue growth in its November-ending fiscal year 2023 \u2014 the slowest in nearly a decade \u2014 some analysts are thrilled with Adobe.<\/p>\n<p>How so? Morgan Stanley\u2019s<fbs-ticker data-name=\"MS\" data-href=\"https:\/\/www.forbes.com\/companies\/morgan-stanley\" data-type=\"stock\"><br \/>\n  MS<br \/>\n <\/fbs-ticker> Keith Weiss wrote Adobe\u2019s analyst day was \u201clight on numbers [and] big on vision.\u201d Brent Thill of Jefferies called the day \u201cthe fastest pace of innovation we\u2019ve seen in 2 decades,\u201d while Wolfe Research\u2019s Alex Zukin wrote in a client note, Adobe is \u201ctruly remaking the entire product suite to be AI native,\u201d the <em>Journal <\/em>reported.<\/p>\n<p>Adobe plans to provide fiscal year 2024 revenue projections in December \u2014 which analysts say will translate into 12% growth \u2014 two percentage points above the company\u2019s FY 2023 projection, noted the <em>Journal<\/em>.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Why Customers Value Adobe\u2019s New Products<\/h2>\n<p>Adobe\u2019s Generative AI vision offers \u201csome of the clearest use cases that could prove especially popular with its user base. The Firefly image generation tool that was just put into beta trials earlier this year is now on its second generation \u2014 [dubbed Firefly Model 2] \u2014 with new versions announced this week for audio, video and 3-D image creation,\u201d the <em>Journal<\/em> reported.<\/p>\n<p>Model 2 enables users to overcome writer\u2019s block. \u201cCustomers can use Firefly technology in Photoshop. If a user has an image, they can enter it as a prompt and it will produce new content. Just like writers, creative people have writer\u2019s block. They can use Firefly for ideation. It gives them a great starting point,\u201d said Chakravarthy.<\/p>\n<p>Generative AI can help meet the growing demand for content. \u201cFirefly enables the enterprise executive to scale content production for digital marketing and personalization. In the next two years, content needs will increase five-fold. To scale in an agile way, you will have to use automation and Generative AI. Enterprises buy from Adobe because it avoids the need to train employees in 10 different tools,\u201d he explained.<\/p>\n<p>Adoption of the AI features in Photoshop has been 10 times higher than an average major product launch, said Alexandru Costin, Adobe vice president of generative AI. \u201cThe way we achieved this with Firefly models \u2014 we integrated it natively into the creative workflows,\u201d Costin told <em data-ga-track=\"ExternalLink:https:\/\/finance.yahoo.com\/news\/adobe-releases-ai-models-aimed-160000461.html\">Bloomberg<\/em><em>. <\/em><\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Adobe\u2019s New Prices<\/h2>\n<p>Adobe is increasing prices in November. Adobe subscription plans enable customers to use Firefly many times per month, but in November, Adobe is raising Creative Cloud prices by about 9% to 10%, <em>CNET<\/em> reported.<\/p>\n<p>Adobe is using a system of Generative Credits for tools such as Firefly which the <em>Journal <\/em>described as requiring \u201cmore frequent users of the service [to] pay more for the privilege.\u201d Customers will use Adobe\u2019s Generative Credits \u201cto turn a text-based prompt into Photoshop, Illustrator, Express and the Firefly web application images and vector creations,\u201d according to Adobe.<\/p>\n<p>Adobe needs to cover the costly load Generative AI places on Adobe\u2019s cloud computing operations. Contributing to those costs are the \u201chigh price tag of Nvidia processors that handle most generative AI work\u201d and the inability of ordinary laptops to host the big AI models, <em>CNET<\/em> reported.<\/p>\n<p>Adobe\u2019s pricing strategy encourages more widespread adoption which could help defray higher operating costs. \u201cGenerative credits let users try it out without worrying whether they are using it too much. Firefly has over three billion creations so far. The product\u2019s value exceeds our price increase which will help Adobe defray more of the cost of operating Generative AI,\u201d Chakravarthy told me.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">How Generative AI Will Satisfy Surging Demand For Marketing Content<\/h2>\n<p>Generative AI could increase the already considerable number of customers using Adobe\u2019s Experience Cloud \u2014 a service for \u201cdelivering, measuring and personalizing customer experiences.\u201d<\/p>\n<p>How considerable? An Adobe spokesperson emailed me October 12, the service is now used by \u201cover 12,000 customers \u2013 including 87% of Fortune 100 companies and 74% of Fortune 500 companies.\u201d<\/p>\n<p>Adobe Analytics has customers among the leaders in many industries. \u201cIn the retail sector, nine of the top 10 U.S. brands rely on AA to understand shopper journeys that move from online to in-store,\u201d the spokesperson wrote. He provided similar Adobe customer counts for the hotel, airline, financial services, media, healthcare and other industries.<\/p>\n<p>Adobe expects Generative AI to increase the size of its market opportunity and to expand its user base. \u201cIt does expand our total addressable market. We will announce new TAM numbers at our next analyst meeting. As Adobe Chief Strategy Officer Scott Belsky said, \u2018Generative AI raises the ceiling and lowers the bar.\u2019 You can produce a lot more electronic content and it opens new use cases. We charge on a per-user basis. Our new products will increase the number of users and their frequency of use,\u201d Chakravarthy told me.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Adobe\u2019s Future In Generative AI<\/h2>\n<p>Adobe says customers value its current Generative AI products and plans to introduce more.<\/p>\n<p>Adobe sees customers getting considerable business benefits from Generative AI.<\/p>\n<p>\u201cGenerative AI gives you agility. Once you have a campaign, the technology can allow you to move much faster to share it on Instagram and TikTok. Generative AI automates more of what was previously done manually \u2014 thus freeing up time for content creators to do more creative work. Overall, Generative AI will let enterprises produce more creative assets with the same expense; attract more Creative Cloud subscribers; enable more segment-specific campaigns, increase customer acquisition, boost customer engagement, and raise customer retention,\u201d Chakravarthy said.<\/p>\n<p>Adobe sees a bright future for Generative AI in its products. \u201cWe see tremendous potential. We can expand into video and 3-D. We will integrate Generative AI into our Creative, Document and Experience clouds. Generative AI will help customers use technology to deploy new use cases faster,\u201d he told me.<\/p>\n<p>I do not have enough information to quantify the revenue impact of those words. October 10, Adobe Chief Financial Officer Daniel Durn said \u201cwe expect to deliver stable, consistent operating margins through this investment cycle.\u201d<\/p>\n<p>Twenty nine analysts set an average 12-month Adobe price target of $610 \u2014 10.3% above its Friday close, CNN reported.<\/p>\n<p>With its stock up so much in 2023, investors could be in for a nasty shock if their expectations get ahead of the growth Adobe actually delivers.<\/p>\n<p><strong><em>Disclosure:<\/em><\/strong> <em>I have owned Adobe shares since 2005 when the company acquired Macromedia.<\/em><\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/petercohan\/2023\/10\/14\/adobe-shares-rising-on-new-generative-ai-services\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As an Adobe shareholder, I am pleased customers are finding value in the company\u2019s Generative-AI-powered services and curious about how much additional revenue growth those services will deliver. This week the Photoshop maker held its annual user conference, Adobe Max, at which it announced new AI services. Sadly, while predicting \u201canother really strong [November-ending] quarter,\u201d according to the Wall Street Journal, Adobe neglected to satisfy my curiosity. Nevertheless, the company\u2019s shares have risen 5% since October 10 when Adobe Max kicked off and 66% since the start of 2023. In an October 11 interview with Anil Chakravarthy, President of Adobe\u2019s<\/p>\n","protected":false},"author":1,"featured_media":1073,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[],"class_list":["post-1072","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Adobe Shares Rising On New Generative AI Services | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"As an Adobe shareholder, I am pleased customers are finding value in the company\u2019s Generative-AI-powered services and curious about how much additional\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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