Shares of Adobe Inc. traded almost 5% lower after-hours today after the company provided soft revenue guidance for its February quarter and fiscal 2024 year.

The disappointing forecast came as Adobe said separately it may face significant costs or penalties relating to a Federal Trade Commission probe into its disclosure and subscription cancellation policies.

For its fiscal fourth quarter ended Dec. 1, the company reported earnings before certain costs such as stock compensation of $4.27 per share, ahead of its own guidance and also above Wall Street’s call for $4.13 per share in earnings. Revenue rose 12% from a year ago, to $5.05 billion, squeezing past the analyst consensus estimate of $5 billion. The company noted that this was the first quarter in which its revenue surpassed the $5 billion mark.

Net income for the quarter came to $1.48 billion, up from a profit of $1.78 billion in the same period a year ago.

Although those numbers were good, things got stickier as Adobe detailed its first quarter fiscal 2024 guidance, saying it’s projecting revenue of between $5.1 billion and $5.15 billion, below Wall Street’s target of $5.16 billion. The company said it’s eyeing a profit of $4.35 to $4.40 per share, ahead of the Street’s consensus of $4.26 per share.

Digging deeper into its guidance, Adobe said its digital media segment, which includes its iconic Creative Cloud design software, is likely to generate sales of between $3.77 billion and $3.8 billion, just shy of the Street’s target of $3.82 billion. The digital experience business segment is also likely to fall short, with Adobe calling for revenue of $1.14 billion to $1.16 billion, versus the consensus estimate of $1.31 billion.

For the full year, things don’t look much better, with Adobe calling for total sales of between $21.3 billion and $21.5 billion, below the analysts’ forecast of $21.7 billion. Adobe’s full-year earnings guidance was also disappointing, with the company suggesting a range of between $17.6 and $18 per share. The midpoint of that range is below the Street’s forecast of $17.99 per share.

Adobe’s conservative forecasts appear to have upset investors because it’s known that the company has seen strong adoption of its suite of artificial intelligence-powered content creation tools. As such, they were hoping for a bigger boost in its near-term revenue. However, Adobe Chief Financial Officer Dan Burn said in a statement that the guidance reflects “current expectations for the macroeconomic and foreign exchange environments.”

The company has been at the forefront of the generative AI buzz that emerged earlier this year with OpenAI and ChatGPT, infusing its suite of creative design tools with numerous AI features. Its AI offerings include its Firefly models for creative expression, such as the text-to-image generator that can be used to create images from text inputs. Another tool in Premiere Pro helps transform raw footage into slick, professional videos, and a generative fill tool in Photoshop allows users to edit images with text prompts.

During the quarter, the company previewed additional upcoming features, such as Project Stardust. This is a new object-aware editor capability that will allow users to select elements of their photos and move them around, simply by clicking on them. The internal AI will be able to identify the object and let users grab onto them, be they people, cars, animals or hats.

In an interview with Barron’s, Burn refused to be drawn on the impact of the company’s generative AI offerings on its guidance, other than to say that it helped improve its results in the latest quarter.

Despite the investor reaction, analysts believe the lower guidance is simply a matter of Adobe being overly cautious. “While 2024 revenue projections came in below expectations, our experts believe AI revenue tailwinds are likely being understated,” Third Bridge analyst Charlie Miner told SiliconANGLE. “They say that while the timeline is uncertain, we should ultimately expect 75% Firefly adoption in the range of $25 to $40 per seat.”

Jefferies analyst Brent Thill shared those sentiments, stressing that Adobe remains “ahead of everyone else” and that its Firefly software is making a huge impact. “It is truly a product that is changing creatives’ lives,” he said. “Our experts have expressed growing confidence that Firefly will not only drive significant ARPU growth but will also act as a strong catalyst for attracting new users to Adobe’s platforms.”

In a conference call with analysts, Adobe Chief Executive Shantanu Narayan (pictured) said the company is seeing strong adoption of its new AI tools. “We believe that every massive technology shift offers generational opportunities to deliver new products and solutions to an ever-expanding set of customers,” he said. “AI and generative AI is one such opportunity. We have delivered against this strategy and are pleased that a number of our groundbreaking innovations are now seeing tremendous usage by customers.”

Also on the call, Adobe officials said they remain focused on closing the $20 billion acquisition of Figma Inc., which was first announced in September 2022. Executives said they disagree with the findings from regulators in the European Commission and the U.K., and are responding to their concerns that the deal could impact competition. The U.S. is also still looking at the deal but has not yet filed any complaints.

In a separate regulatory filing, Adobe said it’s working with the FTC on an investigation into its cancellation and subscription practices, which are alleged to be in breach of the U.S. Restore Online Shoppers’ Confidence Act. In November, the FTC told Adobe it has the authority to enter into consent negotiations to reach a settlement. However, Adobe insists that its past behavior was lawful, though it told shareholders the matter might have a material impact on its financial performance.

Photo: Fortune Live Media/Flickr