Adobe Inc. (NASDAQ:ADBE) Q3 2023 Earnings Call Transcript - Page 3 of 5 - InvestingChannel

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

Brad Sills: Wonderful. Thank you so much for taking my question. I wanted to ask about a comment that I think David made earlier in the call where you’re working hard to make Firefly the option for content design to be safe. I would love to double click on that, understand a little bit, how is Adobe the safe option, and how is the company making this Firefly in this new generative frontier the safe option for enterprises?

David Wadhwani: Yeah. So from the very beginning of Firefly, we took a very different approach to how we were doing generative. We started by looking at and working off the Adobe Stock base, which are contents that are licensed and very clearly we have the rights to use. And we looked at other repositories of content where they didn’t have any restrictions on usage, and we’ve pulled that in. So, everything that we’ve trained on has gone through some form of moderation and has been cleared by our own legal teams for use in training. And what that means is that the content that we generate is, by definition, content that isn’t then stepping on anyone else’s brand and/or leveraging content that wasn’t intended to be used in this way.

So that’s the foundation of what we’ve done. We’ve gone further than that, of course, and we’ve now actually — we’ve been working with our Stock contributors. We’ve announced, in fact, yesterday we had our first payout of contributions to contributors that have been participating and adding Stock for the AI training. And we’re able to leverage that base very effectively, so that if we see that we need additional training content, we can put a call to action, call for content out to them, and they’re able to bring content to Adobe in a fully licensed way. So, for example, earlier this quarter, we decided that we needed a million new images of crowd scenes. And so, we put a call to action out. We were able to gather that content in. But it’s fully licensed and fully moderated in terms of what comes in.

So as a result, all of the content we generate is safe for commercial use. The second thing is that because of that, we’re able to go to market and also indemnify customers in terms of how they’re actually leveraging that content and using it for content that’s being generated. And so, enterprise customers find that to be very important as we bring that in, not just in the context of Firefly standalone, but we integrate it into our Creative Cloud applications and Express applications as well. So, the whole ecosystem has been built on that. And the last thing I’ll say is we’ve been very focused on fair generation. So, we look intentionally for diversity of people that are generated and we’re looking to make sure that the content we generate doesn’t create or cause any harm.

And all those things are really good business decisions and differentiate us from others.

Brad Sills: Great to hear. Thanks, David.

Operator: And we have a question from Keith Bachman with BMO Capital Markets.

Keith Bachman: Yes, thank you. I wanted to go back — David, I wanted to hear your perspective on kind of the third cloud, the Document Cloud, if you will, as we look out over the next 12 months. And the spirit of the question is there’s a lot of attention, appropriately so, given Firefly and whatnot, and perhaps even lending itself in the Experience Cloud. But does gen AI provide any tailwinds associated with the Document Cloud, or is it sort of the existing drivers that will help contribute to growth as we look at next year? But any just kind of — what are the key things that we should be thinking about for Document Cloud? Many thanks.

David Wadhwani: Yeah. First of all, we are very happy with the quarter Doc Cloud had. The ending book of business grew 22% in constant currency. And the strength of that is really driven based on top-of-funnel growth. So, Acrobat on the web had a phenomenal year-over-year growth rate. We’ve been working very actively to get Acrobat sort of deployed with — as plugins within the browsers. We’ve got a great — we’ve been doing a lot of product-led growth work in the products themselves to drive link sharing, so that more and more people are not just using our products, but as they share links, we’re actually able to capture more people and build growth loops. Signatures has been also doing incredibly well. So, as we’ve got this broad-based proliferation of our surfaces that are available and continue to grow in terms of both free and paid usage, it creates a surface area that we can introduce a lot of really interesting things into.

We haven’t announced anything publicly associated with gen AI directly inside of Acrobat, but I think you can fairly safely expect to hear more about that from us soon. And what makes gen AI particularly interesting as it relates to Acrobat is the distribution that we have with Acrobat. So, if Acrobat is — and Reader are in front of hundreds of millions of people on a monthly basis, our ability to insert generative AI into their workflows, just like we’ve been able to really differentiate our work on generative AI in creative by inserting it into the workflows of creative folks, I think that becomes the secret sauce to how we differentiate ourselves.

Keith Bachman: Interesting. Thanks very much.

Operator: And our next question will come from Brent Thill with Jefferies.

Brent Thill: Shantanu, you mentioned success in ETLAs. What’s driving that? Especially given some of the macro jitters are still lingering, are you starting to see those jitters go away and that’s a result of what’s happening with the ETLAs?

Shantanu Narayen: I think in the ETLAs specifically, Brent, both to the comments that David and Anil mentioned, the first is the amount of content that people are creating, there’s a lot of interest associated with ensuring that the combination of Creative Cloud plus Express that people can really understand what they are spending on their content, as well as find ways to use AI to automate it, to localize it, to improve production costs. So, I think that message is certainly resonating with people. And the fact that Express can be a productivity application for every knowledge worker in the enterprise, much like Acrobat as well. So, I think both of those are really leading to a significant amount of great conversations. I think, mobile — David perhaps mentioned even in his prepared remarks how mobile has been one of the tailwinds that we’ve seen, Brent.

So, I think that’s also working. So, I think investment in productivity gains is clearly top of mind right now. And both of these play well into that narrative in enterprises.

Brent Thill: Thanks.

Operator: And we have a question from Alex Zukin with Wolfe Research.

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