What happened
Shares of Adobe (ADBE -1.13%) jumped by 17% in June, according to data provided by S&P Global Market Intelligence.
The cloud software company has seen its share price surge 45% year to date.
Image source: Getty Images.
So what
The hype over generative artificial intelligence (AI) has spilled over to Adobe as the software company's cloud platform allows its customers to tap into this cutting-edge technology to create, modify, and customize their designs. Investors are excited over the company's potential growth as Adobe's software, which makes use of generative AI, promises to be just the tip of the iceberg in harnessing this powerful capability. Adobe's Photoshop Generative Fill feature lets users edit and enhance images by just typing in the desired outcome and letting the software perform its magic easily and effortlessly. Adobe intends to roll this feature out officially in the second half of this year through its new Firefly beta app. Its Illustrator software will also integrate Firefly to enable customers to come up with ideas faster, enhancing the creative process and saving many hours of work.
Adobe also reported record revenue for its fiscal 2023 second quarter as the company enjoyed strong demand across its three key cloud products. Revenue came in at $4.8 billion, up 10% year over year for the quarter, while net income stood at $1.3 billion, up nearly 10% year over year. Free cash flow for the quarter came in at $2 billion, 5.4% higher than the $1.9 billion reported in the prior year. The company also repurchased around 2.7 million shares during the quarter, further reducing its share count to 459 million compared to 473 million in the second quarter of fiscal 2022.
Now what
Dan Durn, CFO of Adobe, has raised the company's annual targets as strong demand for its innovative software injects optimism into its financial numbers. Total revenue for fiscal 2023 is expected to come in between $19.25 billion and $19.35 billion, up around 9.6% year over year from the previous year's $17.6 billion. Earnings per share are expected to be between $11.15 and $11.25, higher than the original forecast of between $10.85 to $11.15 provided in the first quarter.
However, Adobe may encounter a stumbling block in its bid to acquire Figma, a cloud-based design platform. Its $20 billion bid for the software company is being scrutinized by the European Union antitrust regulators. The European Commission will decide whether to clear Adobe's bid by August 7 as it was concerned that the deal may stifle competition. Should the acquisition be blocked, Adobe may be forced to dispose of Figma, not only depriving the business of the positive impact of the purchase and also wasting significant time, resources, and effort.
