Adobe Inc. (NASDAQ:ADBE) Q3 2023 Earnings Call Transcript - Page 2 of 5 - InvestingChannel

Adobe Inc. (NASDAQ:ADBE) Q3 2023 Earnings Call Transcript

So that really — in the context of the short-term contributors, we think that will be really meaningful. We also expect that — as we do this and drive new users, we expect to see a lot of new users come into the free plans. And that’s going to take a little time to ramp. We’ll bring them into the Adobe family, get them using the products, and ramp them to greater value over time. So, first and foremost, proliferation on new users. The second thing is going to be on the book of business. And here, we’re — basically, the pricing changes. Just as a reminder, they have a rolling impact. We’re going to start them late in Q4. And we’re going to start it in certain geos only. And then, we’re going to have a measured rollout in new countries over the course of the next couple of years.

And then certainly also as it relates to enterprise customers, the renewal timing will probably take about three years, given the multi-year contracts that we have in place. So, net-net, we see this truly as a seminal moment for how we’re going to grow the business, but it’s going to take a few years to play out, and we’re really excited about sort of what this means for bringing new customers into the franchise.

Shantanu Narayen: And maybe Kash, just to then tie that all together, in terms of the numbers that we’ve given for Digital Media ARR, because you asked the question from the beginning of the year, remember, I think we guided to $1.65 billion, if you look at what it is even with our Q4 guide that I think $200 million more than that, $1.86 billion or something to that effect. And since we guided in Q3, for Q3 and Q4, $100 million. So, we continue to be really confident and we’re excited about the roadmap.

Operator: And our next question will come from Saket Kalia with Barclays.

Saket Kalia: Okay, great. Hey, guys, thanks for taking my question, and congrats on a great quarter and outlook. Anil, actually my question is for you. Obviously, a lot to talk about with Firefly in the Digital Media business. And it’s very clearly a revenue opportunity there. I’m wondering how you think about the generative AI roadmap or revenue opportunity in the Digital Experience part of the business. I know we talked about the content supply chain, but how do you think about the future of generative AI in your business?

Anil Chakravarthy: Yeah, thanks, Saket. Shantanu and David already talked about the Adobe GenStudio, and we’re really excited about that. This is a unique opportunity, as you said, for enterprises to really create personalized content and drive efficiencies as well in — through automation and efficiency. When you look at the entire chain of what enterprises go through, from content creation, production, workflow, and then activation through DX, through all the apps we have on our platform, we have the unique opportunity to do that. We already have deployed it within Adobe for our own Photoshop campaign. And we’re working with a number of agencies and customers to do that. So, this is a big net new opportunity for us with Adobe GenStudio.

We’re also working on generative AI for other DX applications as well. And at the investor meeting in October, we’ll share more details. But we see a similar opportunity with generative AI to bring together the ability for a number of users across marketing departments or organizations to be able to use the Adobe Experience platform and apps and it’ll act as a co-pilot to accelerate the use cases that they bring to life. So, we’ll share more about that at the investor meeting.

Shantanu Narayen: Saket, maybe, just to give Anil and the team a lot of credit for what they actually accomplished in Q3 as well, the wins in Q3 in the enterprise actually included a lot of the components of GenStudio, both in the Digital Media as well as in the Digital Experience. So, certainly the transformational deals that we’re talking about, a big part of that is the synergy between the two clouds. So, I wanted to point that out as well.

David Wadhwani: And if I could actually just add one quick thing is that the GenStudio work that Anil team has been doing, we’ve actually been using that within the Digital Media business already to release some of the campaigns that we’ve released this quarter. So, it’s one of these things that it’s great to see the impact it’s having on our business, and that becomes a selling point for other businesses too.

Saket Kalia: Great to hear. Thanks.

Operator: And moving on to Gregg Moskowitz with Mizuho.

Gregg Moskowitz: Hey, thank you for taking the question. Congratulations as well on a strong quarter. So, when I look at Firefly, the amount of image generation in a six-month period is clearly pretty stunning. I’m just wondering if you’re able to provide any additional color, whether it be monthly active users or some other metric that may additionally help all of us gauge the improvements that Firefly is driving to your engagement level, to your top-of-funnel, et cetera? Thank you.

David Wadhwani: Yeah, happy to talk about that. It’s been a remarkable few months. I mean, we’ve said a few things. First is that the viral excitement that we saw because of Firefly on social has been hugely beneficial and it’s certainly driven a lot of top-of-funnel opportunity for us. In addition to that, one of the things that we were very excited about is when we integrated it into our CreativePro applications, Illustrator and Photoshop primarily, we saw over 3 million downloads of those betas — beta applications, which is something we’ve never seen before. That gives you a sense of like how thirsty the existing customer base is for the generative capabilities that we have as well. And lastly, one of the things that we’re very excited about, and we obviously track very carefully, is what does this do in terms of giving us access to new users that don’t typically come to Adobe.

And both Express and Firefly, and in particular the integration of Firefly and Express, has been a real accelerant to that. So, it’s been nice to see us not just getting excitement within the current base, but seeing millions of other users coming in, that would not have typically come to Adobe for a product and then giving — and starting their journey with Adobe through Firefly and Express.

Shantanu Narayen: Two other maybe financial indicators to that, Gregg, are first the Photoshop Single App, and I think Dan referred to that. Even in the beta, that actually drove a lot of Photoshop Single App and the early indicators of how that also benefits retention in the entire book of business. So both of those are also good financial indicators of the potential of AI.

Gregg Moskowitz: Great. Thank you, both.

Operator: And we have a question from Brad Sills with Bank of America.

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