Monday Dec 18 2023 10:30
4 min
California-based software firm Adobe’s foray into artificial intelligence has yielded substantial gains for most of the year, but a less optimistic sales outlook dented the company’s stock on Wednesday. Complicating matters, Adobe disclosed that it was under investigation by the U.S. Federal Trade Commission (FTC) regarding its subscription practices.
Following the release of its robust quarterly results, which exceeded analyst estimates for revenue and earnings, Adobe shares have shed close to 3.7% this week on sales projections that have disappointed Wall Street.
Despite the recent dip, the stock had surged by nearly 80% since the introduction of AI tools in May during the annual developers conference.
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Although Adobe reported fiscal fourth-quarter net earnings of $1.49 billion, or $3.23 a share, compared to $1.18 billion ($2.53 a share) in the same quarter the previous year, and announced a record revenue of $5.05 billion, its sales projections for the upcoming quarters fell short of Wall Street's elevated expectations.
Revenue climbed to a record $5.05 billion from $4.53 billion in the year-ago quarter.
“Adobe drove record revenue of $19.41 billion in [fiscal 2023] and 17 percent year-over-year EPS growth, with strong momentum across Creative Cloud, Document Cloud and Experience Cloud,” Adobe CEO Shantanu Narayen said in a statement announcing the results.
According to analysts polled by FactSet, the average prediction was earnings of $4.13 per share on around $5 billion in revenue. The company also pointed to the successful early adoption of its AI-powered content creation tools. “We’re very optimistic,” Narayen said.
The company forecast first-quarter sales between $5.1 billion and $5.15 billion — slightly below the anticipated $5.16 billion by analysts.
Looking ahead to fiscal 2024, Adobe predicted revenue in the range of $21.33 billion to $21.5 billion, falling short of analysts'’ consensus estimate of $21.73 billion. Adobe said the guidance reflects "current expectations for the macroeconomic and foreign exchange environments."
During a conference call with analysts late on Wednesday, Narayen admitted the conservative guidance for 2024 — a practice consistent with previous fiscal years. Nonetheless, he stressed that the first-quarter guidance was the highest ever provided by the company. “It’s our highest Q1 guidance ever,” he said.
Despite some investors dumping ADBE stock after the Wednesday announcement, Wall Street analysts remain enthusiastic about the company’s prospects. Of the 12 analysts who updated their recommendations on the stock on Thursday in a FactSet survey, 10 gave it a Buy rating and two gave it a Hold. The average target price among them was $662.
D.A. Davidson analysts increased their price target on the stock to $685 from $640 after the earnings announcement:
“We continue to view Adobe as a name positioned to post quality results despite ongoing macro headwinds given its strong new business momentum and sustainable margin profile,” said software analyst Gil Luria.
Just before the earnings call, Oppenheimer analysts led by Brian Schwartz wrote:
“Stay the course with Adobe. The stage looks set for Adobe to sustain an enduring and enviable business model that has durable growth with high profit margins over the next several years.”
They left their $660 price target for ADBE unchanged after Wednesday’s results.
Adobe shares have gained over 74.5% year-to-date as of December 15, and are trading at $587.54 at the time of writing on Friday. ADBE stock’s growth has eclipsed the benchmark S&P 500 index this year, with the latter rising by 23% as of mid-December.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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