Adobe Inc. (ADBE) Earnings Call Transcript & Summary

Good afternoon, and thanks for being with us today. Joining me are Adobe's Chair and CEO, Shantanu Narayen; David Wadhwani, who serves as President of Digital Media; Anil Chakravarthy, President of Digital Experience; and Executive Vice President and CFO Dan Durn. This call is being recorded, and during it we'll go over Adobe's financial results for the first quarter of fiscal year 2024. Our press release, along with PDFs of our prepared remarks and financial results, can be found on Adobe's Investor Relations website. Everything discussed today, including our financial targets and product plans, reflects information as of today, March 14, and includes forward-looking statements subject to risks, uncertainty and assumptions. Actual results could differ materially from what those statements set forth. To learn more about those risks, please take a look at today's earnings release and Adobe's SEC filings; during this call, we'll cover both GAAP and non-GAAP financial measures. Our reported results include GAAP growth rates and constant currency rates. Throughout this presentation, Adobe's executives will refer to constant currency growth rates, unless otherwise stated. Non-GAAP reconciliations can be found in our earnings release and on Adobe's Investor Relations website. Adobe Summit is nearly here in Las Vegas at The Venetian Convention & Expo Center, kicking off on Tuesday, March 26. After the day 1 keynote, we'll hold an Investor Meeting at 2:00 p.m. Pacific Time. That event will be webcast live, and a replay will be posted on Adobe's IR website. You can find more details about Summit at summit.adobe.com. I'll now hand the call over to Shantanu.

Thanks, Jonathan. Good afternoon, and thanks for being here with us. Adobe delivered a solid first quarter. Revenue for Q1 came in at $5.18 billion, which is 12% growth compared with a year ago. GAAP earnings per share in the quarter were $1.36, while non-GAAP earnings per share reached $4.48, an increase of 18% year over year. What we achieved shows how central Adobe's products are to the worldwide digital economy. Our strategy is on track: unlocking creativity for everyone, speeding up document productivity, and empowering digital businesses. For creators, communicators, students, entrepreneurs, and companies of every size, Adobe Creative Cloud, Document Cloud, and Experience Cloud matter more than they ever have, and AI acts as an accelerant throughout. Across every one of our clouds, we lead in generative AI. Our approach sets us apart when it comes to data, models, and interfaces. Decades of deep domain expertise in creative, documents, and customer experience management form the foundation of our proprietary data. We make use of large language models, and we've also invested in creating and providing our own models in the creative, document, and marketing areas. For creators and enterprises alike, our IP-friendly stance is a point of differentiation; beyond that, we've innovated by putting generative AI straight into products, with launches in Adobe Photoshop, Illustrator, and Express on desktop as well as mobile. AI Assistant in Acrobat and Reader taps the enormous value held in the trillions of PDFs worldwide. Generative AI is coming to Adobe Experience Cloud, and at Adobe Summit we'll show our AI Assistant for customer experience management. These days every student, communicator, creative professional, and marketer is concentrating on using generative AI to imagine, ideate, create, and deliver content and applications across a huge number of channels. Through the mix of Express, Firefly, Creative Cloud, Acrobat, and Experience Cloud, Adobe holds a unique position to capture this enormous market opportunity. What we're already achieving with our GenStudio offering in the enterprise confirms our leadership, and as we roll these solutions out over the course of the year, we expect that success to carry into other segments. Across all customer segments, we're generating strong usage, value, and demand for our AI solutions; we're monetizing our innovations effectively, with standout strength in Q1 in the enterprise segment spanning our Digital Media and Digital Experience businesses. That strength shows up in RPO growth of 16% year over year. We're happy with a strong Q1. We have an incredible product roadmap that we're executing on to bring AI innovation to our customers around the world, and we are only getting started. Now I'll hand things to David to talk through the momentum in our Digital Media business.

Thank you, Shantanu. Hi, everybody; during Q1, we brought in net new Digital Media ARR totaling $432 million along with revenue of $3.82 billion, representing 13% growth compared with the same period last year. Trillions of PDFs hold the world's information — be it an enterprise legal contract, an invoice from a small business, or a personal school form. We were excited to share news of Acrobat AI Assistant, an enormous step forward in our effort to deliver intelligence to PDFs. Through AI Assistant, we merge generative AI's capabilities with our distinctive grasp of the PDF file format, changing how people engage with their most valuable documents and immediately draw extra value from them. Powered by a proprietary attribution engine, AI Assistant sits deeply embedded within Reader and Acrobat workflows. It immediately produces summaries and insights from lengthy documents, responds to questions via a conversational interface, and offers an entry point for creating e-mails, reports and presentations. Secure data protocols govern AI Assistant, allowing customers to employ these capabilities confidently. We're happy with the early reaction to the English language beta and anticipate usage climbing throughout our customer base as we roll out additional languages later in the year. Monetization of this functionality will come via a monthly add-on offering to the hundreds of millions of Reader users plus the Acrobat installed base spanning individuals, teams, and enterprises. During Q1, Document Cloud revenue reached $750 million, up 18% year-over-year; we gained $143 million in net new Document Cloud ARR, a Q1 record, with ending ARR growth of 23% year-over-year in constant currency. Additional business highlights: Acrobat Web remains an amazing source of customer acquisition, with monthly active users climbing over 70% year-over-year and exceeding 100 million users in Q1. Acrobat extensions for Microsoft Edge and Google Chrome, together with our Acrobat mobile offerings, keep speeding up free-to-paid conversion. Greater viral adoption via link sharing and stakeholder collaboration fueled over 300% year-over-year growth in PDF files sent. Notable enterprise customer wins include Berkshire Hathaway, Merck Sharp & Dohme, Northrop Grumman, Porsche, and the U.S. Navy. Turning to Creative Cloud, creativity is the currency of differentiation in our digital-first world. Each creator and business concentrates on building their brand and connecting with audiences through standout content. Creative Cloud stays the preferred solution for creators worldwide, whether their medium is design, photography, video, illustration or 3D. Adobe Express is motivating millions of users across all skill levels to design faster and more easily than ever; in the year since we announced and released Adobe Firefly, our creative generative AI model, we have aggressively integrated this functionality into both our Creative Cloud flagship applications, and more recently, Adobe Express, thrilling millions of users who have generated over 6.5 billion assets to date. Beyond building our own foundation models, Firefly offers a browser-based tool for brainstorming and fast prototyping, and it's been adopted at an incredible rate. We also rolled out Firefly services not long ago — an AI platform that lets any enterprise embed and extend our technology within their creative production and marketing workflows. Right now Firefly services runs on our commercially safe models, and it gives enterprises the ability to build custom models of their own by supplying proprietary data sets, plus to embed that functionality via APIs into their e-mail, media placement, social, and web creation processes. Early adopters such as IBM are placing Firefly at the core of how they create content. With Adobe Firefly, IBM produced 200 campaign assets and more than 1,000 marketing variations in moments instead of months. That campaign delivered engagement 26x above its benchmark and connected with more key audiences. During Q1, revenue came in at $3.07 billion, up 12% year-over-year. Net new Creative Cloud ARR reached $289 million. Additional business highlights: the beta launch of the new Adobe Express mobile app delivers the magic of Adobe Firefly AI models straight into mobile workflows. A first-of-its-kind integration with TikTok's creative assistant makes creating and optimizing social media content faster, simpler and more effective than at any point before. Express Web usage keeps climbing nicely, with total exports having more than doubled year-over-year. And given the positive reception from our mobile beta, overall Express adoption should accelerate even further. Through Generative Fill, Photoshop keeps empowering creators to create in fresh ways and speed up image editing workflows. Q1 brought the highest adoption of Firefly-powered tools in Photoshop since Generative Fill arrived in May 2023, with customers embracing these features across desktop, web and most recently, iPad, which added Generative Fill and Generative Expand in December. The beta release of AI-powered enhanced speech and new audio workflows pushed premier beta usage to record highs. At Sundance Film Festival, Adobe video tools were the go-to choice, with over 80% of this year's entrants relying on Adobe software. The launch of Behance Pro, a new offering serving the fast-growing Behance community, empowers members to build their brand and discover opportunities, and lets businesses hire talented creators through the Behance platform. The unveiling of new research — like last month's preview of our music generation models and editing tools, and our video auto-dubbing models earlier today — has inspired our Creative Cloud and Express customers. The introduction of Firefly services for enterprises produced notable wins during the quarter, among them Accenture, IPG, and Starbucks. Other key enterprise wins include AECOM, Capital Group, Dentsu, IBM, Nintendo, and RR Donnelley. Given how large the opportunity with generative AI appears to us, we remain focused on driving innovation, adoption and usage of our AI solutions. In Q1, we saw strength across both clouds, with record new commercial subscriptions in Creative Cloud for Q1 and strong product-led growth in Document Cloud. In Express, with Firefly on mobile, plus Firefly services and the AI Assistant in Acrobat, you should see product improvements push ARR to speed up during the year's second half. Our product roadmap has us thrilled. Among the 6.5 billion assets created so far are images, vectors, designs, and text effects. And through research sneaks and product announcements over the next few months, we're eager to share what we're building in audio, video and 3D. Now I'll hand things over to Anil.

Thank you, David. Hi, everyone. The Experience Cloud division kicked off the year strongly, bringing in $1.29 billion in revenue, and it marked our best first quarter ever when it comes to new business. Subscription revenue reached $1.16 billion, which reflects 12% growth compared with the same period last year. Organizations are putting digital investments first so they can boost marketing agility and customer engagement, all while fueling growth and profitability. Adobe's holiday shopping report, which examines trillions of data points, revealed robust online spending throughout the 2023 holiday season, rising 4.9% year-over-year to $222.1 billion — a fresh record for e-commerce, and also for mobile shopping, which for the first time moved ahead of desktop and generated 51.1% of online sales. Our Adobe Experience Cloud applications cover the whole customer funnel, from acquisition through monetization and on to retention. As a worldwide leader in the Digital Experience platforms category, Adobe gives businesses one unified view of their customers' data spanning every channel, enabling them to build precise segments and provide personalized experiences, no matter when or where a customer engages with their brand. Over the last five years, the work we've done in-house on Adobe Experience Platform, Real-time CDP, Journey Optimizer, and Customer Journey Analytics has made us the leading platform for customer experience management. That's because of the sheer scale of profiles, campaigns, and interactions we process — right now more than 500 trillion segment evaluations every month. Today, the ability to roll out personalization at scale has been limited by two things: the number of content variations you can generate and the number of journeys you can set live. Our view is that generative AI will be the next big accelerant. With Creative Cloud, Firefly Services, and GenStudio, we offer an end-to-end answer for the modern supply chain and generative experience model, taking the manual effort out of building personalized journeys. Here's how that part of the call came across. Adobe GenStudio is an application built around generative AI from the ground up, and it gives marketers one intuitive offering where they can quickly plan, create, store, deliver, and measure their marketing content. With advanced generative AI powered by Firefly services, marketers can turn out on-brand content at a scale and level of agility that has no equal, which lets them deliver personalized experiences. GenStudio connects natively to a number of Adobe applications across both Creative Cloud and Experience Cloud, including Express, Firefly, Workfront, Experience Manager, Customer Journey Analytics, and Journey Optimizer. Through it, brands along with their agency partners can push creativity and efficiency in marketing campaigns to new heights. On the business side, the highlights are: momentum with Adobe Experience Platform and its native applications, with the combined annualized book of business surpassing $800 million for the quarter. We're seeing strong interest in Adobe Experience Manager, Workfront, and GenStudio as tools for managing content across the enterprise supply chain. Major global agencies — Accenture Song, Havas, IPG, Omnicom, and Publicis among them — have made Adobe their go-to technology platform, both for running their internal operations and for making creative collaboration smoother with the biggest brands out there. There's also momentum behind Adobe Journey Optimizer on Adobe campaign, driven by companies wanting to serve up more tailored experiences across different channels and surfaces. On top of that, Adobe landed as a leader in the Gartner Magic Quadrant for Digital Experience Platforms for a seventh consecutive year, and we were also recognized in the Forrester Wave for Digital Experience Platforms. For the fourth time in a row, Adobe Experience Manager Assets was recognized as a leader in the Forrester Wave for Digital Asset Management. Notable customer victories include Carl Zeiss, Comcast, Home Depot, NASCAR, Nestle, PayPal, Rogers Communications, Santander Group, Starbucks, and Walgreens. We're thrilled to be hosting Adobe Summit later this month in Las Vegas — the globe's biggest Digital Experience conference — where thousands of customers, partners, and developers from every corner of the world will join us; we can't wait to highlight several product innovations, among them a new generative experience model, progress in Adobe GenStudio, a new AI Assistant in Adobe Experience platform, fresh capabilities in RT-CDP for first-party data activation, and expanded Firefly Services offerings. We're going to lay out how we see things and the approach brands can follow to reach a whole new degree of personalization at scale now that generative AI is here. It'll be a pleasure to walk everyone through our product roadmap, which we're thrilled about, and to hear directly from customers about the ways Adobe is supporting their business transformation. Q1 got us moving quickly, and we're eager to keep that momentum going along with our leadership position through Q2 and afterward. At this point I'll hand things over to Dan.

At the start of today's call, I'll review Adobe's results for the first quarter of fiscal 2024, highlight what drove expansion in each of our segments, and close with our financial goals. In Q1, Adobe delivered another period of double-digit revenue increase, along with solid margins generated by leading products, disciplined financial management, and strong execution. Our pace of launching new products in Document Cloud, Creative Cloud, and Experience Cloud is leading customers to sign substantial multi-year deals with Adobe. The results of what those customers invest appear in our remaining performance obligations, which climbed 16% compared with a year earlier. During the quarter, Adobe brought in all-time-high revenue of $5.18 billion — an 11% increase year over year, or 12% when measured in constant currency. On the business and financial side, the quarter featured GAAP diluted EPS of $1.36, while non-GAAP diluted EPS reached $4.48. Digital Media brought in $3.82 billion in revenue, with net new Digital Media ARR totaling $432 million. Digital Experience revenue was $1.29 billion. We generated $1.17 billion in cash flows from operations, exited the quarter with RPO of $17.58 billion, and bought back roughly 3.1 million shares of our stock during that period. The GAAP EPS figure was pushed down by the billion-dollar payment tied to ending the Figma transaction. Without that Termination Payment, operating cash flows would have been $1 billion higher, and GAAP EPS would have come in $2.19 greater. Both our first-quarter and full-year fiscal 2024 GAAP earnings per share figures were affected by the Termination Payment. Revenue for the quarter in our Digital Media segment came in at $3.82 billion, reflecting growth of 12% compared with a year earlier, or 13% when measured in constant currency. Digital Media ARR stood at $15.76 billion when the quarter ended, a constant-currency increase of 14% year over year. Document Cloud revenue at Adobe was $750 million, which amounts to 18% growth versus the prior year, both as reported and in constant currency. Net new Document Cloud ARR added during the quarter totaled $143 million. Several factors fueled Document Cloud's expansion in Q1. Customers in every segment and region showed appetite for Acrobat subscriptions. Acrobat Web kept growing, a sign that our flagship offerings are succeeding across various platforms. Monthly active users rose within our Acrobat Reader funnel, which pushed free users toward paid plans. We also gained new customers thanks to our partnerships with Microsoft Edge and Google Chrome. Our Teams business performed well as we upsold the new Acrobat offering that bundles Sign capabilities. And businesses of every size came to us with strong demand, proving how essential our document solutions are. On the Creative side, revenue hit $3.07 billion — an 11% increase compared with a year earlier, or 12% when measured in constant currency. During the quarter, our net new Creative ARR came in at $289 million, and ending ARR rose 12% year over year in constant currency. Overall, CC pricing actions came in line with what we expected for the quarter. Excluding the effect of pricing actions tied to Acrobat CC and All Apps in the prior-year quarter, along with Creative Cloud in Q1 FY24, Q1 net new Creative ARR increased by more than 20% year over year. In the first quarter, the forces behind Creative's expansion were: additional subscribers, among them notable uptake of Creative Cloud All Apps spanning regions and types of customers; robust demand from users of individual apps in Creative areas like imaging and photography, plus ongoing expansion for Stock and Frame.io; once more we observed momentum in emerging markets, which we still view as an enormous chance to grow; and exceptional results for Creative Cloud among enterprises, among them initial uptake of Firefly Services. Now for our Digital Experience segment, during Q1 we brought in revenue of $1.29 billion, reflecting 10% growth compared with a year earlier both as reported and in constant currency. Digital Experience subscription sales came in at $1.16 billion. That's a 12% increase over last year, and it holds true whether you look at reported figures or constant currency. For our Experience Cloud business, Q1 was a tremendous start to the year. Several things drove that expansion: We wrapped up transformative deals with big enterprises across different geographies and sectors — companies that are choosing Adobe as the platform to handle the entire customer experience journey; we kept making headway with AEP and native apps, with the annualized book of business rising more than 60% from the same time a year ago; customers showed strong appetite for our Content, Campaign and Workfront products; and we maintained steady strength in retaining and expanding our customer base across all offerings. Customer experience management remains a key focus for large organizations, and since we're a leader in that area, we expect a healthy pipeline as we look toward Q2 and beyond. Now turning to the income statement and balance sheet: Adobe's effective tax rate for Q1 was 36% under GAAP and 18.5% on a non-GAAP basis. The GAAP tax rate for Q1 came in higher than we had targeted, and that was due to the Figma Termination Payment. RPO finished the quarter at a record $17.58 billion, which represents 16% growth compared with the same period last year, on both a reported and constant currency basis. Our closing cash and short-term investment position at the end of Q1 totaled $6.82 billion, while cash flows from operations during the quarter amounted to $1.17 billion. During Q1 we signed a $2 billion share repurchase agreement, which essentially used up our earlier $15 billion authorization. Because our growth and profitability have been so strong, we're announcing a new program to buy back $25 billion of stock, which shows Adobe remains committed to returning capital to shareholders. With the momentum we're seeing across the business and factoring in the macroeconomic conditions, here's what we're targeting for Q2: Adobe's total revenue will land somewhere between $5.25 billion and $5.30 billion; Digital Media net new ARR should come in around $440 million; Digital Media segment revenue is expected to be somewhere between $3.87 billion and $3.90 billion; Digital Experience segment revenue should fall between $1.31 billion and $1.33 billion; Digital Experience subscription revenue will be somewhere between $1.165 billion and $1.185 billion; the tax rate will be roughly 18.5% whether measured on a GAAP or non-GAAP basis; GAAP earnings per share should be between $3.35 and $3.40; and non-GAAP earnings per share will come in between $4.35 and $4.40. To sum up, fiscal 2024 has begun strongly. Through merging the strength of product innovation with outstanding execution, Adobe is generating steady, profitable growth. Our product roadmap is being executed, and we possess the appropriate approach to turn these innovations into revenue throughout the latter portion of this year and afterward. Adobe occupies an exceptionally strong position to take advantage of the long-term shifts that are going to define the coming 10 years. Shantanu, over to you.

Thank you, Dan. Across 3 sizable and expanding categories, we hold the leading position, and we've brought breakthrough innovation to market in Creative Cloud, Document Cloud and Experience Cloud. Our view is that artificial intelligence enhances human creativity and widens the market opportunity available to us. I take pride in how quickly, and how responsibly, we have adopted and shipped generative AI features throughout our product lineup. Given our strategy and how we've executed it, we feel assured about our capacity to bring in new users and provide value to current customers, fueling growth and profitability. I want to express gratitude to our 30,000 employees for their ongoing commitment and their steadfast dedication to innovation and execution. Being included on Glassdoor's Best Places to Work, Fortune's Most Admired Companies and the JUST 100 is especially thrilling. Thanks, and at this point we'll open the line for questions. Operator?

I suppose this question might be directed at David or Dan. Clearly, you both pointed out that new Creative ARR rose over 20% compared to last year once you strip out the price hikes, which suggests a fairly significant pricing drag that we're currently observing. Could you try to break down how that will unfold across the year? David, I know you said ARR is going to increase during the latter half, but honestly it's hard, I think, to square what's happening in the business on a normalized basis. And when might we see that start to show up more in the metrics that everyone tracks?

Sure, I'll kick things off and others can jump in afterward. To begin with, we do — when we examined the book of the business, it's a solid start to the year with Q1 hitting a high watermark at $432 million across the whole business. Looking specifically at Creative Cloud, I just want to ensure everyone pauses and considers our approach to speeding up the business, since I believe the growth drivers here are quite evident. We're concentrating on broadening access for users through items like Express on mobile. We aim to roll out new offers throughout the business with things such as AI Assistant and also current capabilities for Firefly being brought into our core Firefly, our core Photoshop and Illustrator and flagship applications. We're looking to tap into new budget pools by introducing Firefly services and GenStudio as we discussed. And the early indicators, as you noted, in Q1 results really indicate that those growth drivers are gaining traction, as you mentioned, normalizing for FY '20 through the FY '24 pricing actions, we expanded the CC business roughly 20% compared to last year. Other important things to note are that we achieved another record for new commercial subscriptions in Q1 and the business growth stayed steady at — if you review revenue, 12%, if you project forward at ARR, 12%. So the steadiness and the variety of the business is robust. And as we move into the latter half of the year, we have capabilities for Creative Cloud pricing with Firefly that have already begun rolling out late last year as we discussed, and will be progressively rolling out throughout the year; we're scaling Firefly services and Express in enterprise as we discussed. We observed a very promising start to that rollout at the — near the conclusion of Q1. We also anticipate the second half scaling with Express mobile and AI Assistant coming through. So we have many of the back-end capabilities in place so that we can begin monetizing these new features, which are still mostly in beta starting in Q3 and beyond; and regarding pricing, it's what we've discussed previously. Two fairly substantial pricing moves helped us in FY '23. The first was the higher Acrobat prices we rolled out alongside the added value from Sign features, plus a CC price hike launched in FY '22 whose effect carried over into FY '23. Both of those are now falling away, since we've brought in fresh CC pricing tied to Firefly. On balance, the disappearance of the older pricing outweighs the new pricing we've put in place.

Shantanu, the size of this quarter's beat was around half of the absolute beat you put up in earlier quarters, and then the guide is clearly lower for the next quarter. I think the question on everyone's mind is whether this is some kind of AI headwind, macro pressure, or an execution issue. Could you speak to — and maybe it isn't any of those — could you speak to what you believe you're observing in the current quarter?

Yes, happy to, Brent. And I'll say again that we take our targets pretty seriously. When we guided to $1.9 billion for the year, we had already built in both, as David noted, the likely pricing trajectory and how that rolls off, as well as the product roadmap — when AI Assistant and Acrobat would arrive, when Express, currently in beta, would arrive. So I believe all of that was accounted for. If you look at it from an accomplishment standpoint, we see it and say, "Hey, we did $410 million, I think, last year. We did $432 million." Relative to the guide, we remain on track for the $1.9 billion and hopefully we'll exceed that guidance. So from where we sit, it's playing out. Another piece of color, Brent, is that the desktop products remain in beta, and in that area we focus on value and on utilization. I think we shared some figures on the 6.5 billion generations where we're receiving really positive feedback in Acrobat, and that keeps giving us optimism about how it's progressing. Where there's huge interest — and if you consider AI monetization — the 2 areas that are monetizing extremely in line with our expectations are, first, the Creative Cloud pricing we've introduced. As you know, generative packs are mostly included in how people now purchase Creative Cloud, and that rollout is going as expected. The second area where we're monetizing is across the enterprise with Content and GenStudio. I'm really pleased with how that's monetizing. It's a mix, Brent, of going into an enterprise for creation — whether we supply Creative Cloud or a combination of Express — along with what we're doing in asset management and AEM, Workflow, plus Firefly services that let people build custom models and use APIs. We're seeing considerably more monetization earlier, but again, very much in line with expectations. So when I look at the quarter, I feel quite good about both product delivery and how monetization is turning out. It's clear, I suppose, from what we've observed that expectations were maybe a bit higher, including for what we would guide for Q2. But I'm genuinely optimistic about what we've accomplished.

This is a question for Dan. You haven't lifted the guidance for the entire year, and I get that we're only a short way into it, yet I believe all of us would like you to at minimum confirm it. On top of that, you also delayed past April the start of enforcing limits on generative credits for certain products, which people had thought would kick in earlier. What's driving that call? And as far as how credits are being consumed and how those credit packs are being bought, what have you observed so far?

Yeah. Thanks, Brad. I'll take the opening portion, and then hand things to David for the rest. So no, we aren't revising the targets. The full-year targets we gave are the ones from the December call. What we did disclose during that call was the significant shift we observed in Q1 stemming from the Figma Termination Payment. We discussed how it hits GAAP EPS. It flows through Q1 and will definitely affect the entire year. That figure is $2.19, coming from the $1 billion payment. With that said, I believe you now have all you require regarding where our targets were set, though we won't be revising them during this call.

Yeah, and I'm glad to jump in with a bit more. Sure — regarding the timing of when we begin enforcing credits, you shouldn't infer anything from that beyond the fact that at this moment we remain squarely in acquisition mode. Our goal is to draw in a large number of users. We want them engaging with the products to the greatest extent possible. We want them returning and continuing to use them. There's one point I really want to make, since I know there's a great deal of interest in how these credits will unfold over time; during the past few weeks, we've released a couple of sneaks that might also be informative. A month ago, we snuck music composition, which lets you take any music track, assign it a music type such as hip-hop or orchestra or whatever, and it will convert that original track into this new style of music. Only this morning, we snuck our capability for auto-dubbing and lip-syncing, where you hand it a video of a person speaking in, let's say, English, and then it can automatically translate that to French or Spanish or Portuguese or whatever. As you might expect, those actions won't require 1 credit. Those actions are going to be far more substantial in terms of their cost; so at present, look, the main point concerns proliferation and usage. We're going to introduce a great many more new capabilities across the tools that will generate additional usage, and we're also going to introduce more expensive capabilities; and as we've discussed, you ought to begin seeing that ramp over the course of the year, and we're quite comfortable with the adoption we're witnessing. Just 1 final thing to mention. As we said on the call, the highest number of users engaging with generative AI in Q1 ever, so we're extremely excited about the trajectory.

And perhaps to expand slightly on our thinking regarding how AI gets monetized — my sense is that when it comes to experimentation, we're still at an early point. So we're examining the value utilization side along with the experimentation side. On value utilization, the picture for us is genuinely favorable. Regarding monetization and experimentation, we have the generative packs, as you're aware, within Creative Cloud. My expectation is that you'll increasingly see those folded into standard pricing, and us reviewing pricing, since that's how we'd like to keep people engaging with it. In Acrobat, as you've observed, generative packs aren't actually what we're using. Instead we'll be leaning toward an AI Assistant model, which is billed monthly. On the enterprise side, we can offer custom models, which hinges on the volume of content being created, plus an API and metering. That's been rolled out, and we've begun selling it within our GenStudio solution. So I'd say it's fair — and I definitely keep track of what others across the industry are saying — that the encouraging part here is the interface integration we've completed across all our apps, along with the utilization, and my belief is the experimentation will let us figure out the best way to draw in the greatest possible number of customers who are new to Creative Cloud. We've discussed this in connection with Firefly bringing in new customers. Without question, I'd say the count of Q1 commercial subscriptions set another record. So we're fully doing everything we set out to experiment with as we bring these to market, Brad, and I wanted to emphasize that point too.

David, I noticed you kicked off your prepared remarks with Document Cloud. Could you share what kind of enthusiasm you're seeing on the Document side? And regarding how Digital Media growth is mixed for the year, should we anticipate that it keeps trending toward the Document side? Or is it more in the second half that some of the creative enhancements begin to contribute more substantially, and we might see that shift reverse somewhat?

Yes, glad to discuss that. Our satisfaction with how Document Cloud has performed remains very high and continues to be very high. To really grasp how that unfolds, Document Cloud is — the expansion comes from a blend of our go-to-market initiatives and our product innovation. Where go-to-market is concerned, consider that Reader remains a top of funnel for us, and we keep observing growth in Reader monthly active users. So the pool of people we might convert into paid subscribers keeps expanding. We've also mentioned that Acrobat Web has contributed significantly to our growth. So we're observing 70% year-over-year growth in web MAU, and we surpassed 100 million monthly active users for the first time on the Web side; and naturally, we're putting substantial effort into product-led growth to move Journey users toward some of that value that propels conversion. So that covers what we're doing on the go-to-market front. Regarding product innovation, our approach over the past couple of years has been to establish PDF as the starting point of a workflow, correct? And that's why we built Sign directly into it so people could work with their PDFs and initiate a transaction for their business, and that keeps expanding quite well and it's an excellent selling point for an integrated service. We also rolled out link sharing a few years back for commenting and reviewing with groups and teams. That link sharing grew 300% year-over-year, so it's an enormous source of value, but it's also an enormous source of viral growth. That's also what — when somebody receives that, it's another chance for us to draw them into the value of the broader offering. And you should anticipate seeing that with AI Assistant too. So clearly, everyone is watching AI Assistant in Acrobat. I really hope each of you is using it; it ought to make your lives more effective. Beyond insight, we believe there's considerable opportunity for monetizing insight for AI Assistant across our core base of Acrobat users but also, for the first time, pursuing consumption-based value. So the hundreds of millions of monthly active users of Reader will likewise be able to access AI Assistant and buy an add-on pack there as well. So there's a really wide foundation for examining the way we generate revenue from that. Yet it's also the beginning of being able to take what you've discussed and produce e-mails and presentations and keep that going. So when you put all of that together, it's a genuinely powerful mix of go-to-market work and product innovation. So we are — we remain bullish on this. On the second part of what you asked, we are — as has been mentioned several times during this call, we're extremely enthusiastic about all the innovation being released, which is only now beginning to scale where monetization is concerned and/or is still in beta on the Creative Cloud side; we anticipate that arriving in Q3 and we'll begin our monetization there; so we remain very confident regarding the second half acceleration of Creative Cloud.

This one's probably for both David and Shantanu. Obviously, there was a lot of buzz this quarter about making video with generative AI, including, naturally, the Sora announcement. So maybe we could ask you two to spend a moment on how you see generative AI affecting the video editing space, and how Firefly might get in on that trend?

Absolutely, Saket. I'll kick things off, and then David can jump in. First off, the progress — whether from OpenAI or from our own models, which David and I are lucky enough to review every week — is remarkable, because with video you've got to crack other basic challenges, such as physics, correct? Like, when someone's walking down a street, you need to guarantee they don't pass through a building or sink through the floor. So I'd say certain of those video breakthroughs inside Adobe have genuinely tackled some of those tough issues. Stepping back, though, I believe video will actually act as even more of a catalyst for editing tools. The idea that the coming Oppenheimer will be produced from a text-to-video prompt simply won't occur for decades. Which means, in fact, especially with video, there will be a catalyst pushing people to ask, "How do I find an entry point for using text-to-video and then cut it with our applications?" That's why I'm especially thrilled about what's possible with Premiere and with After Effects on the video side. So all things considered, Saket, I'd call the technology impressive. We've built our models. We've brought them into our interfaces; we're doing partnerships too. Jensen and I had a truly excellent discussion lately about what's achievable as they put money into video. He'd definitely be glad to work with us, and together we're exploring ways to extend what's possible in video using their models too, be it Edify or NeMo. So I'd say it's genuinely early days. We're witnessing a great deal. Hopefully — and David brought this up — check out a few of the lip-sync things we've built, letting you auto-dub and translate across languages, which is why we deliberately put out a small piece of that demo. So truly strong progress, but all things considered, video will drive even greater demand for editing applications so people can genuinely capitalize on generative AI.

Yeah, and perhaps I can just throw in a couple of points. To begin with, like Shantanu said, the work happening in the industry, and definitely what Sora is doing, is really remarkable and thrilling. It also lines up quite well with the models we ourselves are building. So we believe there's going to be — just like there was with video — sorry, imaging — there's going to be a range of models released, among them the Adobe model coming later this year, and we ought to begin seeing a great deal of innovation in that space, similar to what we've witnessed in imaging. We've already given a peek at one or two things, as Shantanu discussed, but text-to-video features from us will arrive later this year. Yet you'll also get it with openness regarding the training data we use. You'll get it with greater tool ability and controllability. You'll get it built into our tools too. Now having said all that, I want to be extremely clear about what Shantanu stated, and that's that we view the spread of video models as a really positive development for Adobe. We're going to collaborate with OpenAI on Sora. You're going to watch us, clearly, build our own model. You're going to watch other companies build theirs. Every bit of that generates a tailwind, because the more video clips people create, the more they need to edit that material, correct? So whether that's Premier or After Effects or Express, they've got to put those clips together; they've got to color correct those clips. They've got to tone-match. They've got to make transitions possible. So we're thrilled about what we're creating, but we're equally thrilled about the partnerships we're seeing with OpenAI and others traveling this road. And taking a broader view, you ought to expect more from us in the coming weeks involving imaging and vector, design, text effects, and over the coming months involving audio and video and 3D; we're extremely thrilled about what all of this means, not only for the models, but for our APIs and our tools.