Adobe Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brent Thill - Jefferies LLC - Analyst : Shantanu, if you took the AI book of business, it would be low single-digit percent of your total revenue for the year. I guess many are asking, when does this become more material? How long does it take? What is required? Maybe just help us walk through the AI journey and how that translates to revenue.

Question: Brent Bracelin - Piper Sandler & Co. - Analyst : I wanted to double-click into the demand linearity you saw in the quarter. I appreciate the commentary reaffirming 11% Digital Media ARR growth guide for the full year. But could you provide more color on trends you saw in the quarter across Creative and Document Cloud here?

Question: Brent Bracelin - Piper Sandler & Co. - Analyst : Helpful. Look forward to talking to you next week.

Question: Keith Weiss - Morgan Stanley & Co. LLC - Analyst : And thank you for the additional disclosure. I think it's a really interesting view kind of breaking down the creative and marketing professionals versus the business professionals and consumer group. And kind of following on that last question, correct me if I'm wrong, but it feels kind of bullish to me that the business professionals and consumer group has a stronger growth rate, creative at 15% creative and marketing professionals, a little behind because it feels like business professionals and consumer group, those products would be faster sales cycle, particularly on the consumer side of the equation, faster adoption. The creative and marketing professionals, this broader solution that you're trying to sell would have a longer sales cycle. So the question is, am I thinking about that right? And are you seeing any indications that, that creative and marketing professional group, whether it's in your pipeline or sort of the activity you're seeing, could that catch up with what we're seeing from the business professionals and consumer group?

Question: Keith Weiss - Morgan Stanley & Co. LLC - Analyst : Outstanding. Can I sneak one last one in for Mr. Durn? It's great to see you guys take advantage of the pullback in the stock price by accelerating the share repurchase which picked up this quarter. Could these -- could this pace of share repurchases, can you guys sustain this throughout the year or is that more of a onetime pickup? Daniel Durn - Adobe Inc - Chief Financial Officer, Executive Vice President - Finance, Technology Services and Operations Yes. So if I take a step back, Keith, and you think about the last four quarters, we've repurchased almost $11 billion. And we've always talked about if there's opportunities to be opportunistic along the way, we would take advantage of it. And I think that's what you saw play out in Q1. We've REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 12, 2025 / 9:00PM, ADBE.OQ - Q1 2025 Adobe Inc Earnings Call got a strong point of view about the financial profile throughout the course of the year. Happy to reaffirm guidance, but we're going to drive that with strong operating margins, strong cash flow delivery and be strong capital allocators throughout the year. So we feel good about where we sit. And if there's opportunities to be opportunistic, we will.

Question: Keith Weiss - Morgan Stanley & Co. LLC - Analyst : Yes. It's great to see you guys putting your money where your mouth is by accelerating that share repurchase. It definitely helps.

Question: Kash Rangan - Goldman Sachs & Company, Inc. - Analyst : Much appreciate the disclosure and the color and everything that goes with it. Shantanu, question for you. When you pivoted the company to a new business model through cloud, initially, there was a lot of skepticism. Then you proved to us that the TAM was actually larger in the new creative meets the cloud cycle. And the company was able to accelerate through the transition and put up even better margins and by expanding the TAM necessarily. So as you look at AI right now, right now, one bearish argument that one could make, which I don't subscribe to, is that you're playing defense and that AI is a cost of staying in business and keeping us relevant to your creative base. But how do you look, since you've been through this one big shift before, you've got a lot of experience, where is your conviction on how truly incremental AI can be for your growth? Could you be at a similar junction where you're poised to get into the next cycle is actually bigger TAM, not to put words in your mouth, but even maybe dare I say the potential to accelerate off of the good growth that we've seen so far?

Question: Kash Rangan - Goldman Sachs & Company, Inc. - Analyst : Excellent. And one follow-up and very quick, promise if I can. With the turbulence in the markets with trade wars, et cetera, tariffs, et cetera, how do you feel your customer base is going to behave? Is everything going to be on track from what you can tell by talking to your customers? Or are they kind of perplexed by what's going on and pausing?

Question: Mark Moerdler - Bernstein Institutional Services LLC - Analyst : Dan, can you give us more color on why you're changing the categorization of revenue, removing the historical Document Cloud and Creative Cloud? Is this driven by the One Adobe sales motion? Is Express now sold predominantly with Document Cloud? How should we think about the drivers? Daniel Durn - Adobe Inc - Chief Financial Officer, Executive Vice President - Finance, Technology Services and Operations Yes, so thanks for the question, Mark. As we laid it out, we talked about increasingly driving cross-cloud offerings. We're already doing it today. We're going to be doing more of it going forward. And as you look at individuals increasingly buying offerings, as you look at enterprises increasingly buying solutions and bringing different parts of our portfolio together to meet their highest value needs around these two groupings of the customers, it really is meant to just draw a highlight to our strategy and how we're executing against that strategy. On a go-forward basis, our success is going to be driven by the way we innovate into the intersection of productivity and creativity, into the intersection of creativity and marketing. And those intersections are highlighted by these two groupings of customers. And so the intent around this is to really bring to life how we're driving our strategy, how we're executing against it provides the best insight in how the company is performing on a go-forward basis.

Question: Mark Moerdler - Bernstein Institutional Services LLC - Analyst : That makes a lot of sense. And one quick other one. Should we expect the disclosure on the AI ARR something that we'll be getting quarterly or periodically updated?

Question: Alex Zukin - Wolfe Research, LLC - Analyst : I will join the chorus of those commenting positively on some of the new numbers, particularly the AI book of business. And that's where I wanted to ask the question. Basically, look, you're going to give us a number, we're going to ask for more. So in that spirit, if you look at the $125 million and you think about the segmentation between Assistant, Firefly, GenStudio, is there any triangulation around maybe how much -- what the percentages of for the breakout of those and maybe stack rank the growth rates that are going to get you to double that by the end of the year? And then kind of similarly, if you think about if that $125 million is impacting or where the tailwinds are more towards the creative and marketing professional or the business professionals?

Question: Alex Zukin - Wolfe Research, LLC - Analyst : That's very, very helpful. I guess maybe just to follow along there. You've seen -- or we've seen a lot of consolidation start to happen within the AI realm where the model companies or the agent even emerging the agentic companies. Maybe just remind us on how you're thinking about your approach towards organic versus inorganic innovation here, given just the plethora of functionality that you're releasing across the board.

Question: Mark Murphy - J.P. Morgan Securities LLC - Analyst : I was wondering if you can just comment on what you're sensing fundamentally in terms of advertising activity and consumer spending trends in the wake of some very choppy results from multiple airlines the last several days and multiple retailers. What is giving you the resilience to reaffirm the FY25 guidance when some of those are really huge sectors of the economy and they seem to be encountering some turbulence? I'm just wondering if there -- you basically see them continuing to create and market and advertise despite this environment. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 12, 2025 / 9:00PM, ADBE.OQ - Q1 2025 Adobe Inc Earnings Call

Question: Mark Murphy - J.P. Morgan Securities LLC - Analyst : Okay. And then -- I appreciate that, Shantanu. As a very quick follow-up on Alex's question, when that -- with the ARR, the $125 million ARR doubling in the next nine months, do you think it's going to be the same composition or is something going to be coming in from the video models that might change the mix there in the next nine months?

Question: Saket Kalia - Barclays Capital Inc. - Analyst : I'll keep it to one. David, maybe for you. It's great to see the Firefly app tiers that customers can add to their existing subscriptions. And maybe to Shantanu's point, this is a better topic for FA day, but I'm wondering if we could just talk about, how do you envision sort of the potential attach rate there? I mean, Firefly is clearly an unprecedented offering so maybe that's really tough to answer. But are there any products that maybe Adobe has seen in the past like Adobe Stock or any others that you look at as sort of a framework for what that adoption curve could look like?