Adobe Inc Q2 2024 Earnings Call Transcript

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

Question: Mark Moerdler - AllianceBernstein L.P. - Analyst : Thank you very much and congratulations on the quarter and especially the strong net new ARR. I'd like to ask a little more color on specifically the net new ARR that we saw in Creative Cloud. Can you give us a sense of what the contribution near term, medium term to Digital ARR are from seat growth versus upsell versus consumption on things like Adobe Stock and AI credits even rank ordering or quantifying anything give us some sense of what's driving that number, and that would be very helpful and really understanding what's going on in the drivers of that number. Thanks.

Question: Aleksandr J. Zukin - Wolfe Research, LLC - Analyst : Hi guys. Thanks for taking the question and congratulations on this incredible results. I wanted to ask kind of just similar to Mark's question. Just how much of GenAI demand did you see in the quarter in terms of -- for sort of both the Creative Cloud portfolio and Digital Media in Creative Studio as well as in GenStudio ? And how does it kind of help to pick up more on the enterprise side of the business, on the SMB side of the business ? Help us understand that progression and maybe how you're planning for it in the back half of the year

Question: Aleksandr J. Zukin - Wolfe Research, LLC - Analyst : Super helpful. And then maybe just one on the macro. Just given your guys' purview, like what is the story that you're seeing in terms of the macro on the demand environment? Clearly again, you're commenting on solid performance in the SMB and in the enterprise. Is there any areas that you're seeing pockets of weaknesses that's really vertical-dependent? Just maybe give a comment on kind of how we should think about it as we look to the rest of the year.

Question: Aleksandr J. Zukin - Wolfe Research, LLC - Analyst : Awesome. Keep doing what you're doing, guys.

Question: Saket Kalia - Barclays plc - Analyst : Okay, great. Hi guys, thanks for taking my question here and echo the congrats on the quarter. Maybe for both of you Shantanu and David. There are clearly just so many layers to the Firefly monetization story. But I think one theme that's coming out a little bit in this call and particularly interesting route to monetize is just the increased engagement that Firefly helps drive in your flagship products, right, or I think we call it sort of the interfaces, right? An example there would be like Generative Fill for Photoshop. And you've clearly started expanding that to other flagships like Premiere and Illustrator. Maybe to go one level deeper, is there a way that you think about the potential opportunity from things like higher retention rates? Or any other way that -- I know it's really tough to size, but how have you sort of thought about it even qualitatively ? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2024 / 9:00PM, ADBE.OQ - Q2 2024 Adobe Inc Earnings Call

Question: Saket Kalia - Barclays plc - Analyst : Very helpful. Thanks, guys.

Question: Brent John Thill - Jefferies Financial Group Inc. - Analyst : David, on Express, you mentioned the success you're seeing. Can you maybe drill into some of the other metrics and accomplishments that you're seeing out of Express this quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2024 / 9:00PM, ADBE.OQ - Q2 2024 Adobe Inc Earnings Call

Question: Brent John Thill - Jefferies Financial Group Inc. - Analyst : Thank you.

Question: Gregg Moskowitz - Mizuho Americas LLC - Analyst : Hi. Thank you very much. And I'll add my congratulations. For your Creative business, how are you thinking about the Q side of the P times Q equation over the balance of the year? Based on these numbers anyway, I would certainly assume that you had really healthy unit growth in Q2. And I'm wondering if you expect that to continue. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2024 / 9:00PM, ADBE.OQ - Q2 2024 Adobe Inc Earnings Call

Question: Gregg Moskowitz - Mizuho Americas LLC - Analyst : And Shantanu, since you also called out the strength in digital earlier, including driving new Creative All Apps subscriptions from your website, are you doing anything different that's helping to drive that behavior? And if so, is that something you think can continue as well?

Question: Gregg Moskowitz - Mizuho Americas LLC - Analyst : Very helpful. Thank you.

Question: Keith Weiss - Morgan Stanley & Co LLC. - Analyst : Thank you guys for taking the question. And again, congratulations on a really solid set of results in an environment where not very many software companies have been able to beat and raise in this type of uneven 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. JUNE 13, 2024 / 9:00PM, ADBE.OQ - Q2 2024 Adobe Inc Earnings Call I wanted to maybe focus in a little bit on the question that Mark Moerdler asked. In particular on what gives you guys the confidence to see a return to year-on-year growth in Creative Cloud net new ARR. It declined in Q2, it declined in Q1 and if I'm not mistaken, the decline in Q2 was a little bit steeper than what we saw in Q1. So what are the particular drivers and maybe some detail on those drivers that give you guys the confidence that trend line that has been actually heading in the wrong direction is going to head in the right direction now? We're actually going to see growth in those metrics in Q3 and Q4?

Question: Keith Weiss - Morgan Stanley & Co LLC. - Analyst : That is a great answer. Thank you so much.

Question: Bradley Sills - Bank of America Corporation - Analyst : Oh, great. Thank you so much. I wanted to ask a question around the generative credit component to your pricing here. It seems like with all the progress you've made embedding Firefly across the key flagship products and the engagement levels that you're seeing, we should start to see perhaps some ramp in that generative credit component to your pricing. Is that a fair assessment? Would you expect to start to see that coming in? Or should we look to other services like the video capabilities that you're going to be launching shortly as a key catalyst there? Thank you.

Question: Bradley Sills - Bank of America Corporation - Analyst : Very helpful. Thank you Shantanu.

Question: Brad Alan Zelnick - Deutsche Bank AG - Analyst : Great. Thank you so much and congrats to all of you. I don't want Anil to feel left out, so I'm going to ask a DX question. Anil, it's good to hear AEP is on track to become the next billion-dollar business for Adobe. Can you expand on the journey and drivers that get you there? And in particular, how important are cloud migrations? And how do you see AEP AI Assistant perhaps accelerating the journey to $1 billion? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2024 / 9:00PM, ADBE.OQ - Q2 2024 Adobe Inc Earnings Call

Question: Brad Alan Zelnick - Deutsche Bank AG - Analyst : Great to hear and keep up the great work guys.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc. - Analyst : Hi, thank you very much. You guys could have three separate earnings calls because you have three different businesses that even the smallest one is very large. So yes, sorry, Anil, David, and Shantanu, I may not be able to ask all the questions that I want. I'm sure we have plenty. But I'll just keep it super high level, Shantanu. Generative AI, it seems to swing back and forth. Just so early in its evolution, the possibilities seem magical sometimes, endless sometimes, sometimes it feels very disappointing. But with every quarter that Adobe is executing on this path, where do you stand with the question that we do get from investors? Will generative AI be so good that it's the end of the creative process? So we don't need creative folks, that software will do everything? That sounds a little far-fetched, but I'm just throwing it out there to see how you would react to that proposition. Same in Experience Cloud as well. Could generative AI create its own marketing campaign, put marketing people out of business? Or maybe it doesn't. I'm sure you have strong views. Maybe flipped on the other side, it does create category growth on the other hand, not category compression. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 13, 2024 / 9:00PM, ADBE.OQ - Q2 2024 Adobe Inc Earnings Call So sorry for that super high-level question, but that seems to be a big debate on the stock here, at least from the long-term perspective. Thank you so much.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc. - Analyst : Awesome, the message here is that, GenAI is going to create more growth in the category. And Shantanu, you did that with the pivot to cloud. You grew the category, so here we go again. Thank you so much.

Question: Jake Roberge - William Blair & Company, L.L.C. - Analyst : Hey, thanks for taking the question and I'll echo my congrats on the great quarter. I know it's early, but what's been the feedback and customer behavior for those users that are on Firefly Services and GenStudio? And then thinking more longer term, what type of price uplift could you see from those customers over time, just given what you said about the acceleration in Firefly generations being driven by those products? Thanks.