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Earlier this month Adobe (Nasdaq: ADBE) reported its quarterly results that were ahead of market expectations. However, a weak revenue outlook did not bode well for its stock, and the stock fell 5% in the after-hours trading session.

Adobe’s Financials

Adobe’s second quarter revenues grew 11% to $5.87 billion, ahead of the market’s estimates of $5.79 billion. Adjusted EPS of $5.06 also beat analyst estimates of $4.96.

During the quarter, Digital Media segment grew 11% to $4.35 billion. Digital Media Annualized Recurring Revenue grew 12% to $18.09 billion, ahead of the market’s forecast of $18 billion. Digital Experience segment revenue grew 10% to $1.46 billion with Digital Experience subscription revenue growing 11% to $1.33 billion. The market was looking for revenues from Digital Experience segment at $1.44 billion.

For the second quarter, Adobe provided an outlook of $5.875-$5.925 billion in revenues and an EPS of $4.00-$4.05. It expects to end the year with revenues of $23.5-$23.6 billion and an EPS of $16.30-$16.50. The market was looking for revenues of $23.6 billion with an EPS of $16.05 for the year.

Adobe’s Generative AI Monetization

Adobe continues to grow the capabilities of its generative AI offerings, especially the Firefly generative AI tool. Recently, Adobe rolled out new Firefly offerings globally, and it plans on continuing to deliver more innovation over the next few months. When integrated with its Creative Cloud apps, the Firefly app is allowing creative professionals to deliver improved precision and performance. The app is attracting new users to the Adobe franchise and overall, Firefly’s subscribers grew 30% over the quarter.

Earlier last quarter, Adobe made the Firefly video model available to all users. The capability allows users to generate video clips from a text prompt or image, change camera angles, and make other edits including changing frames, changing backdrops, and customizing motion design elements. It also allows users to use text prompts to generate sound effects for their images.

Adobe recently released the Firefly app on mobile for both iOS and Android-based devices. The mobile app provides access to all its models as well as models from OpenAI, Google, and Flux. Users can now use prompts on their smartphones to generate images or videos or convert images into videos. The mobile app also allows users to edit certain parts of images using generative fill or expand an image with generative expand. Adobe Creative Cloud subscribers can start a project on the Firefly mobile app and store it in the cloud to access it through the web or desktop app.

Additionally, the company released Firefly Boards, a collaborative whiteboarding tool that allows users to create videos using either Adobe’s own video models or those made by its competitors. Firefly has added significant volume to Adobe’s content. According to Adobe, users have created over 24 billion media assets with its Firefly models.

But while Adobe keeps building on its AI strategy, the market is not fully convinced about its ability to monetize the offering. Adobe is controlling its risk exposure by relying on third party providers like Google, OpenAI, and Black Forest for the language model. It has also laid out pricing tiers for access to Firefly.

Firefly is available through pricing plans that range from $9.99 a month to $69.99 a month depending on the various credit levels that users require. Adobe has also included access to Firefly as part of its Creative Cloud Pro subscription bundle. But AI image generation is a very crowded market, and it may take longer than earlier anticipated for Adobe to prove its value amongst the crowd.

Meanwhile, Adobe’s stock is trading at $385.83 with a market capitalization of $163.9 billion. It touched a 52-week high of $587.75 in December and a 52-week low of $332.01 in April.

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