Troubled SaaS icon Adobe tumbled after hours, sending its stock to 7 year lows after the company announced that CEO Shantanu Narayen will resign from the creative software giant amid deep skepticism about the company’s ability to survive and thrive in the AI era. Narayen had served as CEO of the company for 18 years, and will remain in the position until a successor has been appointed, Adobe said Thursday in a statement. He will stay on as board chairman.
The CEO change “adds questions around strategic continuity, capital allocation priorities, and pace of innovation,” Grace Harmon, an analyst at Emarketer, said in an email. “Investors will likely focus on whether incoming leadership maintains a balance between disciplined execution and aggressive AI investment, especially as competition in creative and enterprise AI intensifies.”
The company also gave a sales forecast for the current quarter that just topped estimates, but failed to ease investor fears that the software maker is being left behind by new competitors.
In the fiscal first quarter, revenue increased 12% to $6.4 billion, compared with analysts’ average estimate of $6.28 billion. Adjusted earnings were $6.06 a share in the period, which ended Feb. 27. The average projection was $5.88 a share.
Annual recurring revenue for the company’s AI-first products such as Firefly more than tripled compared to the same period last year, Narayen said in a script prepared for a conference call scheduled after the results. In September, Adobe said sales from these products exceeded $250 million.
“We are focused on selecting the right leader for this next exciting chapter of the company’s growth and are grateful for Shantanu’s continued leadership as CEO to ensure a smooth transition,” said Frank Calderoni, the board’s lead independent director, who will oversee the search for Narayen’s successor.
For the quarter ending in May, the company expects revenue to be $6.43BN – $6.48BN, vs a conservative estimate of $6.43BN. Profit, excluding some items, will be $5.80 to $5.85 a share, compared with an average projection of $5.70.
The maker of creative software such as Photoshop is among a group of application software makers, including Salesforce and Atlassian that are seen as struggling to win new customers in the face of much cheaper AI upstarts. Adobe has worked to weave artificial intelligence tools through its creative and marketing software, and offers its own range of AI models meant to generate imagery that doesn’t carry copyright risks in an effort to keep its massive market share.
“Sentiment is constrained by long-term AI fears, current competitive pressures, revenue deceleration, and margin headwinds from AI investments,” wrote Brent Thill, an analyst at Jefferies, in a note ahead of earnings.
The shares fell about 6% in extended trading after closing at $269.78 in New York. The stock has declined about 23% this year, and is about to drop the lowest level since 2019.