Adobe Inc Q4 2024 Earnings Call Transcript

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

Question: Michael Turrin - Wells Fargo Securities, LLC - Analyst : David, you mentioned in your prepared remarks a few things, focusing on expanding innovations, including newer, higher-priced Firefly offerings and potentially accelerating Firefly by integrating further into GenStudio. I was hoping you could just maybe expand on how you're thinking about the adoption curves of those efforts. And as a second part, Dan, if you can just add any commentary on how you're incorporating some of these newer efforts into forecast, if there's conservatism, just given they're newer, or just how to think about that, also useful.

Question: Michael Turrin - Wells Fargo Securities, LLC - Analyst : Thanks very much.

Question: Alex Zukin - Wolfe Research - Analyst : I guess maybe to the point that you just alluded to in terms of AI being meaningful as part of the broad growth narrative for business, can you maybe talk about how you're thinking about the growth driver from Firefly, from GenStudio? And when -- kind of how will we see that circulate through the year in terms of the net new Digital Media ARR? Is that something that you think is more going to be showing up in the DX business? It would be great to get some color there. And then anything, Dan, that we should think through, given the new guidance methodology, around seasonality or linearity for net new ARR in the Digital Media business?

Question: Alex Zukin - Wolfe Research - Analyst : Understood. Thank you, guys.

Question: Kirk Materne - EVERCORE ISI - Analyst : David, I was wondering if I could just follow up on your last comment on sort of obviously driving new users, new adoptions, incredibly important. I just -- is there pricing sensitivity, meaning you're delivering so much value, I think that pricing given the value you're delivering would be a bigger lever unless there's pricing sensitivity. So can you just walk through that a little bit more? Because it feels like you should be able to get sort of all three vectors going at the same time, whereas I know you're going to focus more on bringing people in and making them successful. But I'm sort of -- I guess, is there something else on the pricing side that I'm missing why you're not getting that as well?

Question: Kirk Materne - EVERCORE ISI - Analyst : I guess a quick follow-up for Dan. Dan, obviously, Black Monday fell into your first quarter this current year. Any color you can offer in terms of what that meant, if at all, to Creative Cloud net new ARR this quarter? Daniel Durn - Adobe Inc - Chief Financial Officer, Executive Vice President - Finance, Technology Services and Operations Yes. Black Friday/Cyber Monday played out about as expected. We've been talking about a multiyear trend where commercial activity is shifting left in terms of timing. We run our promotions over a larger window of time to reflect consumer behavior, and we see a similar pattern commercially from our customers this year that we've seen in prior years. If we think about online shopping this year, up 8.4%. You can see last year, that's up from 4.8% so a nice step-up this year versus last year. But you can see Cyber Monday from a contribution standpoint, even though the growth last year was down relative to this year, Cyber Monday grew at 9.6%, this year at 7.3%. Just illustrates the flattening of the profile and consumer behavior around that. So performance as expected.

Question: Keith Weiss - Morgan Stanley - Analyst : A lot of excitement from you guys on the conference call about the pace of innovation going on in the business. And we hear that excitement from creative professionals, and they talk about an acceleration in the pace of innovation. But apologies to state the obvious, but investors aren't feeling that excitement or aren't showing that excitement. The stock is a major underperformer on a year-to-date basis, and it's down again on an after-hours basis today. And I would point to, it's the lack of acceleration that we're seeing in the numbers, right? Digital Media net new ARR this quarter grew just -- or Creative Cloud grew 2%. You're guiding to decelerating growth into the forward year despite all this innovation. And I think the question that it brings up in an investor's mind is there's some leak in the bucket, right? All this innovation, new monetization avenues, pricing going up, but the growth is going in the wrong direction. Like is there a part of the equation that's not working? Is there share losses? Is there something that we're not seeing that is taking away the momentum in the numbers that's not -- so we're not seeing the acceleration in the numbers, if you will?

Question: Keith Weiss - Morgan Stanley - Analyst : Thanks for the feedback.

Question: Keith Bachman - BMO Capital Markets - Analyst : I wanted to ask David to you, if I could, on Doc Cloud specifically. Growth was certainly strong this quarter. And I just wanted to understand some of the context associated with durability. And if you could break it into some of the parts, it looks like your monthly active users continues to grow well. And in addition to that, how are you thinking about leveraging the value there in terms of price, specifically within the growth of Doc Cloud. And again, the broader question is just on the durability of Doc Cloud grew 23% over the course of the quarter in terms of ARR. Trying to understand how durable it is and what the pieces are, and then I have a follow-up.

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. It sort of leads into my follow-up question, if I could sneak it in, is we've talked about, during the course of this call tonight, the various drivers of growth for ARR. And I just wanted to specifically ask about consumption as we think about FY25. And the question is, is that going to be a contributor towards ARR growth? Or should investors really be thinking about trying to maximize seats, if you will, and really shouldn't be about consumption being additive to growth in '25? That's it for me.

Question: Brad Sills - BofA Global Research - Analyst : If I could ask a question, David, of you, please. In the past, you've provided some good color (inaudible) really, it sounds like there's momentum there. It seems like this will be the year, with all the Firefly Services integration into the core franchises, that we could see some acceleration in conversion of that funnel. So would love to get some updates from you on that effort and how you see that unfolding throughout the year.

Question: Brad Sills - BofA Global Research - Analyst : Really just Firefly Services across all the franchises, Photoshop, Lightroom, et cetera. What could that integration effort do to the conversion activity with the top of funnel?

Question: Jay Vleeschhouwer - Griffin Securities, Inc. - Analyst : Dan, you noted that your current RPO was up 13% in the quarter, which results in a 10% 3-year CAGR for current RPO. Would you expect that over time or at least in fiscal '25, that your current RPO growth would be closer to what you just reported for Q4 or might revert more to the lower three-year CAGR? And then for David, if I could, just since there were so many mentions of tiered offerings. Is the concept there more around functionality at the product level as compared to the olden days of tiering that was more about segmentation and packaging as in the old CS days?