Adobe Inc Q3 2024 Earnings Call Transcript

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

Question: Alex Zukin - Wolfe Research - Analyst : Hey, guys. Thanks for taking my question and congrats on what looks like a very strong quarter. I've one question, but it's a two parter. The quarter itself, particularly on the digital media ARR outlook, was very strong. It looked unseasonably strong because you haven't grown net new ARR sequentially in the 3Q I think in almost four years. So maybe just comment, what drove this unseasonable strength? Is it pricing, AI traction, and particularly, the Document Cloud net new ARR? But at the same time, given all the product momentum we went through in the script, it's a bit confusing to understand why the Q4 guide is the lowest it's ever been sequentially for Q4 on net new digital media ARR, which I think makes people a little nervous about maybe the go forward in the next year performance. And so maybe just address this dichotomy because it looks seasonally a little bit different than what we're used to. And I think it's weighing on the stock after hours. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2024 / 9:00PM, ADBE.OQ - Q3 2024 Adobe Inc Earnings Call

Question: Alex Zukin - Wolfe Research - Analyst : Very helpful, guys. Thanks again.

Question: Mark Murphy - JPMorgan - Analyst : Thank you so much, and I'll add my congrats. David, I'm wondering if you could compare the AI monetization opportunity that you're sensing with the image models relative to the future potential with your audio and video models. It's -- for instance, how many tokens might be consumed when someone is generating a video versus an image? And then tying in with that, just how optimistic are you maybe being able to solve some of the limitations with the current video generation models where the facial expressions lack realism or they can't handle the object interactions or they don't provide enough detail or resolution in the video?

Question: Mark Murphy - JPMorgan - Analyst : Thank you very much.

Question: Keith Bachman - BMO Capital Markets - Analyst : Hi. Thank you very much. I appreciate taking the question. I wanted to pick up a little bit on how we should be thinking about monetization. Will consumption, you think -- as we start to turn the year, can consumption contribute to ARR growth as we look at FY25? Because I think there's pervasive fears that the state of competition may in fact limit your ability to turn on that monetization, if you will, from either consumption or price. And I just wanted to see if you could lace in consumption against the backdrop of competition. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2024 / 9:00PM, ADBE.OQ - Q3 2024 Adobe Inc Earnings Call

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. Great. And then perhaps for my follow-up, I wanted to pick up on Alex's first question. But you're guiding net new ARR down 3% year over year in Q4. And I think investors are thereby taking that as perhaps a framework when you look at next year. But is there anything that net new ARR will be down next year? And I know you don't want to give guidance for next year, but just any thoughts you want to address as it relates to the guidance associated with net new ARR being down in Q4 versus a framework that we might want to apply for the FY25 net new ARR?

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. Thank you, Shantanu.

Question: Saket Kalia - Barclays - Analyst : Okay, great. Hey, guys. Thanks for taking my question. David, maybe for you, you touched on some of the drivers in document, which was super helpful. But I'd love to maybe go one level deeper into some of the dynamics in that business, which, of course, continues to grow net new ARR at a really nice clip. So maybe we can just talk a little bit about -- are there any pricing headwinds or tailwinds that we should keep in mind specifically for Document Cloud? And also, maybe you can give us a sense for where Document Cloud is in its journey to maybe becoming more of a subscription-heavy business? Do those make sense?

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

Question: Jay Vleeschhouwer - Griffin Securities, Inc. - Analyst : Yeah. Thank you. Good evening. David, I'd like to follow up on something that you said on the second-quarter call. And that was that -- you said at the time that you were, for the rest of the year, going to, quote, pour gas on your GTM and as well engage in a full funnel campaign later in the year. The question is, could you update us on that? It does seem to be, in no small part, corroborated by some of your internal investments that we've been able to see, for example, in your ICX team, your go-to-market positions across multiple products, strategy positions, and so forth. But you've made this commitment for a substantial expansion. But do you think you need, going forward, to continually accelerate the pace of investments in go-to-market? Or do you think at some point, perhaps soon, you can begin to taper that off and then leverage that capacity to revenue growth and thereby margin expansion?

Question: Jay Vleeschhouwer - Griffin Securities, Inc. - Analyst : Thank you.

Question: Tyler Radke - Citi - Analyst : Yeah. Thanks very much for taking the question. I wanted to ask you about the digital experience side of the business. RPO looked pretty strong in terms of sequential additions. The implied guide for Q4 was a bit lighter than consensus. I know you did talk about some unusual dynamics in terms of seasonality, Cyber Monday. But could you just talk about the strength and underlying dynamics you're seeing in the business heading into Q4? Thank you.

Question: Tyler Radke - Citi - Analyst : Thank you.

Question: Brent Thill - Jefferies - Analyst : Thanks. Just back to the guide, can we just drill in? I know you mentioned there were a couple of factors that were contemplated. I'm just curious if there's anything else that you're seeing that is different in terms of end demand or any softness. I know the US decelerated a little bit, but any accelerators?