Adobe Stock Faces Mixed Reactions Despite Strong Q3 Performance

These Analysts Are Bullish on Adobe Stock Despite Its Tumble -- Here's Why

They suggested subscription upgrades to access Firefly, Adobe's family of generative AI models, will be a key metric to watch. Adobe (ADBE) shares plunged nearly 9% Friday amid concerns about its weaker-than-expected outlook, but analysts were bullish on the stock, suggesting the company's projections were conservative and that it could get a boost from artificial intelligence (AI) demand. Adobe's Digital Media arm, which includes Creative Cloud subscriptions, brought in record net-new annualized recurring revenue (ARR) for the third quarter, but missed analysts' estimates for fourth-quarter guidance. Jefferies analysts said they suspect Adobe's outlook "could be very conservative," citing strong tailwinds from pricing and AI monetization. The analysts said fiscal 2025 "could be the year of AI monetization" for Adobe, noting that the company is "already seeing some monetization, though early, as new users buy higher-priced plans, existing users upgrade, enterprises buy Firefly Services, and new products such as Acrobat AI Assistant get adopted." Upgrades by Adobe Creative Cloud subscribers to access Firefly, the company's family of generative AI models, will be a key performance indicator to watch, Bank of America analysts said. "It is notable that Adobe is driving meaningful AI generation and running training and inferencing on large scale Firefly models, while delivering healthy margin expansion," the analysts said, adding that it "also speaks to the advanced nature of Firefly models, relative to competing [large language models]." Nearly three-quarters or 11 of the 15 of the analysts covering Adobe tracked by Visible Alpha held a "buy" or equivalent rating for the stock as of Friday. Their average price target of $620.86 would imply over 15% upside from Friday's closing price of $536.87.

Adobe Stock Tanks On Disappointing Q4 Guidance: Why These Analysts Says Reaction Was 'Overblown' - Adobe (NASDAQ:ADBE)

The company guided to FQ4 DM NNARR of $550M, lower than consensus of $571M. Shares of Adobe Inc ADBE tanked in early trading on Friday, even after the company reported upbeat fiscal third-quarter results. The company reported its results amid an exciting earnings season. Here are some key analyst takeaways. RBC Capital Markets analyst Matthew Swanson maintained an Outperform rating and price target of $610. Goldman Sachs analyst Kash Rangan reiterated a Buy rating and price target of $640. KeyBanc Capital Markets analyst Jackson Ader reaffirmed an Underweight rating and price target of $450. Oppenheimer analyst Brian Schwartz maintained an Outperform rating and price target of $625. Piper Sandler analyst Brent Bracelin reiterated an Overweight rating and price target of $635. JMP Securities analyst Patrick Walravens reaffirmed an Market Outperform rating on the stock. Bank of America Securities analyst Brad Sills maintained a Buy rating and price target of $640. Check out other analyst stock ratings. RBC Capital Markets: Adobe reported strong quarterly results, "beating expectations across the board," Swanson said in a note. DM NNARR (Digital Media net-new annual recurring revenue) came in at $504 million, beating guidance by more than the average in the last four quarters. The company exited the fiscal third quarter with RPO (remaining performance obligation) of $18.14 billion. This represents 15% year-on-year growth, which is "a sign of broader enterprise adoption," Swanson stated. Management lowered guidance for the fiscal fourth quarter. This could prove conservative, "given recent innovation and execution" and an "additional potential catalyst from Adobe Max," he further wrote, calling the stock weakness "an overreaction." Goldman Sachs: Adobe reported DM NNARR of $504 million, versus consensus of $462 million, driven by revenue growth of 11% and operating profit margin of 47% coming in higher than estimates of 10% and 46%, respectively, Rangan said. The stock was punished for management's weaker-than-expected DM NNARR guidance of $550 million for the fiscal fourth quarter, which missed consensus of $571 million, he added. "While investors are likely concerned about guidance's effect on upcoming DM FY25 guidance and hesitant about where we are in the maturity of the business, we believe this reaction is overblown," the analyst wrote. Adobe's core business remains strong and is likely to be boosted by ramping AI adoption, he further stated. KeyBanc Capital Markets: Adobe's third-quarter beat made the fourth quarter even more dependent on "a strong seasonal end to the year, which, in our opinion, is no guarantee in the current budget environment," Ader said. The fourth-quarter outlook across the board is below prior implied guidance and consensus, he stated. "The list of explanations includes increased go-to-market costs to market increased pace of product launches, FX being more of a headwind than was factored into the Company's methodology at the start of the year, a calendar anomaly that causes Cyber Monday to fall into next fiscal year and large document cloud deals that were signed earlier than anticipated," the analyst wrote. He added, however, that Adobe may need to sacrifice margins to maintain its revenue growth. Oppenheimer: Adobe reported total revenues of $5.41 billion, representing 11% year-on-year growth and beating consensus of $5.37 billion, Schwartz said. Pro forma earnings grew by 14% year-on-year to $4.65 per share, higher than the market estimate of $4.53 per share, he added. Management guidance to BM NNARR of around $550 million for the fourth quarter, which missed the consensus by $25 million, the analyst stated. He noted, however, that the full-year DM NNARR has been raised by $23 million to around $1.97 billion and came in above the consensus of $1.95 billion. Piper Sandler: DM ARR may have been a useful metric during the SaaS transition, but is not in the AI era, Bracelin said. He added that the annual and new DM ARR variance "is just 3.8% for four years at $1.91B-$1.98B." Adobe's new DM ARR beat consensus by $44 million in the third quarter, but the company lowered the fourth quarter projection by only $21 million, the analyst stated. "Nothing in Q3 results or the Q4 outlook changes our thesis that ADBE is in the early innings of a new innovation cycle," he further wrote. JMP Securities: The company guided to its fiscal fourth-quarter non-GAAP earnings of $4.63-$4.68 per share, versus consensus of $4.67, Walravens said. Total revenue of $5.50-$5.55 billion, versus consensus of $5.61 billion, representing around 9% year-on-year growth at the midpoint, he added. "On the cautious side, the F4Q guidance was a bit light, AI monetization remains early, and competition is increasing, particularly from Canva and Figma," the analyst wrote. Adobe has a good strategy of "developing commercially safe AI frontier models and embedding them into its applications." BofA Securities: Adobe's DM NNARR of $504 million "nicely exceeded our $471 million estimate," Sills said in a note. The company's third-quarter results were boosted by about $20 million worth of deals in the Document Cloud being pulled forward from the fourth quarter, he stated. "The Q4 outlook for NNDMARR of $550 million is below our $571 million from the movement into Q3," the analyst wrote. He added, however, that the net result is an increase of $32 million in the fiscal 2026 outlook to $1.915 billion. ADBE Price Action: Shares of Adobe had declined by 9.12% to $533.08 at the time of publication on Friday. Now Read: Jim Cramer Rebukes Analysts For Harsh Stance On Adobe Despite Strong Q3 Earnings Report Image: Shutterstock Market News and Data brought to you by Benzinga APIs

Adobe Q3: $550 Million In Net New ARR Growth Guidance Is Not Bad (NASDAQ:ADBE)

Adobe's digital media and experience platforms are expected to grow by 12% and 9% respectively, supported by AI functionalities and robust subscription growth. I published my 'Strong Buy' thesis on Adobe Inc. (NASDAQ:ADBE) in June 2024, highlighting their strong AI positions in Firefly. Adobe released a strong Q3 result on September 12th after the bell, while they guided a weak growth in net new digital media annual recurring revenue (ARR) for Q4. Adobe is set to release their Firefly Video Model later this year, enabling creators to generate video powered by AI. I continue to believe Adobe's digital media and digital experience will remain relevant in the AI era. I reiterate a "Strong Buy" rating with a fair value of $600 per share. As depicted in the chart below, Adobe delivered 11% constant revenue growth, with 12% growth in Digital Media and 10% growth in the Digital Experience segment. My biggest takeaway from the quarter is Adobe's continuing investment in their Firefly and Adobe Express, which powers Adobe Photoshop, Illustrator, Lightroom, and Premiere Pro with AI functionalities. Adobe has surpassed 12 billion Firefly-powered generations across Adobe tools, as communicated over the earnings call. The AI-related investments are crucial to Adobe's future growth, as AI-powered tools can create additional value for end customers and maintain Adobe's competitive advantages in both digital media and digital experience markets. On September 11th, Adobe announced their Firefly Video Model will be available later this year. With Adobe's Firefly Video Model, editors can generate videos using generative AI tools. Adobe's Firefly Video Model could potentially compete against OpenAI's Sora and Runway's Gen-3 Alpha model. More importantly, given Adobe's extensive video/photo database, elements, and software tools, their Firefly Video Model can integrate more seamlessly with existing software platforms, enhancing the creation, editing, and publishing of digital content. The issue for the quarter is their weak guidance for the digital media net new ARR growth in Q4, which indicates a 3.3% year-over-year decline. Adobe generated $569 million in net new digital media ARR in Q4 FY23, but guided $550 million in the coming quarter, as shown in the chart below. I think the weak guidance is primarily caused by tough comparisons from last year. As illustrated in the chart above, Q4 FY23 was Adobe's strongest quarter for digital media growth recently, delivering 14% constant revenue growth and 15.6% total ARR growth. As such, Adobe faces a strong comparable in Q4. Just considering the absolute amount of new ARR growth, the guidance is quite respectable, in my opinion. Adobe continues to enhance its Digital Media platforms with AI functionalities, including the AI assistant and Firefly image generator. These AI-powered platforms are likely to contribute to ARR growth for FY25. As indicated over the earnings call, these AI-powered features in Photoshop have accelerated core creative workflows and streamlined repetitive tasks, saving editors/creators tremendous time when producing digital content. I believe these features could help Adobe engage more new customers and drive additional subscriptions from existing users, ultimately boosting ARR growth. As shown in the table below, Adobe is guiding for $5.5 to $5.55 billion in revenue for Q4, and the midpoint implies 9.5% year-over-year growth in revenue. I am considering the following factors for Adobe's near-term growth: Putting the two segments together, the overall revenue growth is projected to be 11% in my discounted cash flow ("DCF") model. I forecast a 30 bps operating margin expansion driven by: 10bps gross margin expansion due to pricing increases; 10bps from SG&A operating leverage and 10bps from R&D optimization. With these parameters, the DCF can be summarized as follows: The WACC is calculated to be 12.6% assuming: a risk-free rate of 3.6%; a beta of 1.8%; equity risk premium of 6%; cost of debt 6%; equity balance of $16.5 billion; debt of $3.6 billion; and a tax rate of 18.5%. The fair value is calculated to be $600 per share, as per my estimates. For Adobe, the biggest headline risk is likely OpenAI's Sora, an AI model capable of creating realistic and imaginative videos from text instructions. As discussed in my previous articles, Adobe is in the early stages of allowing third-party AI models to be embedded in their video/photo editing platforms. Adobe's management also indicated that they are partnering with OpenAI to integrate Sora into Adobe's platform. As long as Adobe continues to invest in their AI-powered features, I don't believe these third-party AI models significantly impact Adobe's future growth. Instead, these AI models could potentially become part of Adobe's ecosystem for digital media and digital experience. As such, the overall market will likely expand due to AI features, benefiting all the participants in the space. I don't believe there are any significant issues with Adobe's Q4 guidance for net new Digital Media ARR growth. I continue to believe Adobe will grow their AI-powered digital media and experience platforms. Therefore, I reiterate a "Strong Buy" rating with a fair value of $600 per share.

Adobe stock outlook remains positive despite weak guidance, says Goldman Sachs By Investing.com

On Friday, Goldman Sachs (NYSE:GS) reaffirmed its positive stance on Adobe (NASDAQ:ADBE) shares, maintaining a Buy rating and a $640.00 price target. The endorsement comes in the aftermath of Adobe's third fiscal quarter earnings for 2024, which surpassed market expectations in several key areas. Despite this, Adobe's stock experienced a 9% decline in after-hours trading, following the company's forecast for its fourth fiscal quarter Digital Media Net New Annualized Recurring Revenue (DM NNARR) that fell short of consensus estimates. Adobe reported a Digital Media NNARR of $504 million, exceeding the consensus of $462 million. The company also modestly outperformed expectations with an 11% revenue growth compared to the forecasted 10%, and an Operating Margin (OPM) of 47%, higher than the consensus of 46%. However, concerns were raised due to the weaker-than-expected guidance for the upcoming fourth quarter's DM NNARR, which is projected to be $550 million against the anticipated $571 million. According to Goldman Sachs, the market's reaction to the guidance, which may influence expectations for the full fiscal year 2025 and raise questions about the maturity stage of Adobe's business, is considered excessive. Goldman Sachs underscores Adobe's robust core business, which is further enhanced by the increasing adoption of artificial intelligence. Notably, the use of Adobe's AI features, such as Firefly, has seen rapid growth, with over 12 billion generations since its launch and a more than 70% quarter-over-quarter increase in AI Assistant interactions. The firm's confidence in Adobe is bolstered by several factors, including key growth drivers remaining intact, with new logos and net expansion playing a significant role in growth over pricing adjustments. Additionally, Adobe Express is attracting users outside of Adobe's traditional Serviceable Addressable Market (SAM), which supports expectations for continued user growth. Lastly, the guidance anticipates year-over-year growth for Creative Cloud Annualized Recurring Revenue (ARR), despite a tougher comparison for Document Cloud ARR, which is seeing increased momentum in its underlying business. Goldman Sachs anticipates that Adobe could conclude the fiscal year with a DM NNARR exceeding $2 billion, especially when considering the company's historical trend of outperforming estimates by an average of $30 million over the past 10 quarters. The upcoming user conference and fourth-quarter earnings report, where initial fiscal year 2025 guidance will be provided, are viewed as potential catalysts for rebuilding investor confidence in Adobe. As Goldman Sachs reiterates its confidence in Adobe, the company's financial metrics can provide additional insights into its market position and future prospects. Adobe's impressive gross profit margin, reported at 88.66% for the last twelve months as of Q3 2024, underscores its operational efficiency and strong product offering. This is particularly relevant as the company navigates the expectations set for its Digital Media Net New Annualized Recurring Revenue (DM NNARR). Moreover, Adobe's stock has demonstrated resilience with a high return over the last three months, showcasing a 27.86% price total return, which may be indicative of investor optimism regarding the company's growth trajectory. While the stock is trading at high valuation multiples, such as a P/E ratio of 52.13 and a Price / Book multiple of 17.88, these reflect the market's valuation of Adobe's prominence in the software industry and its potential for continued profitability, as highlighted by its revenue growth of 10.91% in the same period. InvestingPro Tips further reveal that Adobe operates with a moderate level of debt and its cash flows can sufficiently cover interest payments, suggesting financial stability. For investors seeking more comprehensive analysis, additional InvestingPro Tips are available, offering a deeper dive into Adobe's financial health and market position. With 17 additional tips listed on InvestingPro, investors have access to a wealth of information to inform their investment decisions.

Evercore maintains Outperform rating on Adobe stock amid Q3 success By Investing.com

Evercore ISI has maintained its Outperform rating on Adobe (NASDAQ:ADBE) shares with a steady price target of $650.00, following the company's third-quarter results which surpassed expectations. Adobe's Digital Media Net New Annual Recurring Revenue (DM NNARR) for Q3 was approximately $504 million, about $45 million ahead of guidance, marking a significant beat. Adobe's third-quarter performance showcased robust revenue growth and earnings per share, both exceeding predictions. The Digital Media segment's NNARR, a key performance indicator, particularly impressed with its overachievement against the company's forecast. Despite these strong results, Adobe's forecast for the fourth quarter was more conservative than anticipated, with the DM NNARR guidance for Q4 being roughly $20 million below market expectations. The analysis identified several factors contributing to the lower forecast for Q4. Notably, the Creative Cloud NNARR increased year-over-year in Q3 and is expected to continue this growth trend in the next quarter. The company also highlighted that initial responses to new offerings such as Firefly and Express have been positive. However, a shift in seasonality for Document Cloud revenues, with three significant deals closing in Q3 rather than Q4, impacted the guidance. Further influencing the fourth-quarter outlook were foreign exchange (FX) assumptions that did not align with earlier projections, affecting revenue guidance. Additionally, the timing of Cyber Monday, which falls in the first quarter of the fiscal year instead of the fourth quarter this year, is expected to have a substantial impact, potentially representing around $15-20 million of Annual Recurring Revenue (ARR). Despite the cautious fourth-quarter guide, Evercore ISI suggests the market's after-hours reaction might be exaggerated. The firm believes that Adobe remains on track to approach $2 billion in DM NNARR for the fiscal year, considering the company's traditionally conservative guidance. Moreover, the expectation for Creative Cloud to grow its NN (NASDAQ:NNBR) ARR year-over-year in Q4, despite the absence of Cyber Monday, reinforces confidence in Adobe's performance. The upcoming MAX event is also seen as an opportunity for Adobe to clarify the guide and emphasize the progress of its new Generative AI products. Adobe's recent third-quarter results have not only shown a strong performance in key metrics but have also been reflected in the company's financial health as per the latest InvestingPro data. The company boasts a substantial market capitalization of $260.08 billion, underscoring its significant presence in the software industry. Adobe's gross profit margin for the last twelve months as of Q3 2024 stands at an impressive 88.66%, which indicates efficient operations and a strong pricing power. Additionally, Adobe's revenue growth over the same period was 10.91%, showing a consistent ability to increase sales. InvestingPro Tips highlight Adobe's impressive gross profit margins, which align with the robust revenue growth reported in the third quarter. Moreover, Adobe's stock has shown a strong return over the last three months, with a 27.86% price total return, reflecting investor confidence in the company's performance and future prospects. While the company is trading at a high earnings multiple, with a P/E ratio of 52.13, this may be indicative of the market's high expectations for Adobe's continued growth and innovation, especially in light of its new Generative AI products. For investors looking to delve deeper into Adobe's financials and future outlook, InvestingPro offers additional insights and tips, with a total of 17 listed on their platform, providing a comprehensive analysis for informed decision-making.

Adobe stock faces challenges from weak growth outlook and AI competition - HSBC By Investing.com

On Friday, HSBC (LON:HSBA) analyst Stephen Bersey adjusted the price target for Adobe (NASDAQ:ADBE), increasing it to $536 from the previous $519, while keeping a Hold rating on the stock. The revision follows Adobe's fourth-quarter fiscal year 2024 revenue guidance, which suggests a year-over-year growth of 9.4% at the midpoint. This forecast represents a slower pace compared to the 10-12%+ year-over-year growth seen in the past five quarters and falls 1.3% short of the consensus expectations. Adobe's guidance for digital media net new Annual Recurring Revenue (ARR) indicates a 5% year-over-year decline, which may lead to disappointment among investors, according to the analyst. However, the company's Non-GAAP Earnings Per Share (EPS) guidance aligns with the consensus at the midpoint. The report also highlights that Adobe is in the initial phase of introducing and monetizing artificial intelligence (AI) features within its product lineup. The analyst expressed concerns over the ability to evaluate Adobe's progress in AI monetization effectively and raised questions about the sustainability of these features in the long term. The creative market is currently experiencing dynamic changes as competitors introduce AI-enabled products, increasing the competitive pressure on Adobe. The HSBC analyst pointed out the risk of rapid commoditization in the industry due to the surge in competition. With these factors in mind, the analyst advocates for a cautious stance, monitoring the competitive landscape and looking for more concrete evidence of Adobe's success in AI monetization before altering their position. According to the latest data from InvestingPro, Adobe's market capitalization stands at a robust $260.08 billion, reflecting the company's prominence in the software industry as highlighted by one of the InvestingPro Tips. Despite the concerns raised by HSBC analyst Stephen Bersey regarding the company's AI monetization and the competitive landscape, Adobe boasts an impressive gross profit margin of 88.24% over the last twelve months as of Q2 2024. This financial health is further underscored by the company's strong return over the past three months, with a price total return of 27.86%. Investors may also consider Adobe's high earnings multiple, with a P/E ratio of 52.13 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 44.1. This is indicative of the market's high expectations for Adobe's future earnings, which is also reflected in the company's high Price / Book ratio of 17.52, signaling that the stock may be trading at a premium. For those looking for more detailed analysis, InvestingPro offers additional tips on Adobe's financials and market performance. There are 17 more InvestingPro Tips available for Adobe, including insights on the company's debt levels, valuation multiples, and profitability predictions for the year. These tips can provide investors with a more comprehensive understanding of Adobe's financial position and market potential, which may be particularly relevant given the current competitive dynamics in the creative market.

Adobe Q3 Earnings Beat Projections | The Motley Fool

The company reported a revenue of $5.41 billion, representing an 11% year-over-year growth. This figure beat management's projected range of $5.33 billion to $5.38 billion. The company also delivered a GAAP diluted EPS of $3.76 and a non-GAAP diluted EPS of $4.65, both exceeding management's guidance. Overall, the quarter showcased Adobe's strong position in the market and its effective business strategies. Source: SEC filings. Expectations based on management's guidance, as provided in 2024-06-13 earnings report. Adobe is a digital media and digital marketing solutions company known for its Creative Cloud, Document Cloud, and Experience Cloud products. It enables individuals and enterprises to create, publish, and promote their content extensively. Recently, Adobe has prioritized integrating artificial intelligence (AI) into its product offerings. The company's key success areas include its well-adopted subscription-based business model and substantial AI advancements, particularly with the Adobe Firefly generative AI tool. Adobe's recent efforts have focused on enhancing its digital media and digital experience segments, leveraging AI to drive customer engagement and retention. The company's subscription model allows for steady and predictable revenue streams, contributing to its strong financial stability. Adobe's Q3 2024 witnessed several significant milestones. The Digital Media segment reached $4.00 billion, growing 11% year-over-year, surpassing the guidance of $3.95 billion to $3.98 billion. This segment's net new Annualized Recurring Revenue (ARR) hit $504 million, closing the quarter with a total ARR of $16.8 billion. Creative revenue within the digital media segment was $3.19 billion, growing at 10% year-over-year. The Document Cloud. another part of the Digital Media segment, generated sales of $807 million, marking an impressive 18% growth year-over-year. In contrast, the Digital Experience segment's revenue was $1.35 billion, reflecting a 10% increase. The subscription revenue within this segment grew by 12%, reaching $1.23 billion. These figures were in line with the prior guidance of $1.325 billion to $1.345 billion for this segment. Another notable highlight of the quarter was Adobe's continued progress in integrating AI across its products. The inclusion of AI-driven enhancements, particularly Adobe Firefly, significantly contributed to increased customer engagement and retention across Creative Cloud, Document Cloud, and Experience Cloud. This reflects Adobe's commitment to empowering its users with cutting-edge technology. Financially, Adobe's cash flows from operations were robust at $2.02 billion for Q3 2024, demonstrating its strong cash generation capabilities. The company also repurchased approximately 5.2 million shares, underlining its commitment to returning capital to shareholders. Remaining Performance Obligations (RPO) exceeded $18 billion, growing by 15% year-over-year, showcasing strong future revenue visibility. Looking forward to the fourth quarter, Adobe has adjusted its targets, taking into account current macroeconomic conditions and expected seasonal strength. It aims for a total revenue between $5.50 billion and $5.55 billion. Digital Media net new ARR is projected to be around $550 million, with segment revenue between $4.09 billion and $4.12 billion. The Digital Experience segment revenue is expected to range from $1.36 billion to $1.38 billion. Non-GAAP diluted EPS guidance is set at $4.63 to $4.68. In coming quarters, investors should watch for Adobe's continuous advancements in AI integration and subscription model expansion. Management's financial outlook remains optimistic, with an eye on overcoming competitive pressures and integration risks associated with acquisitions. The updated guidance reflects confidence in maintaining its growth trajectory and increasing value for shareholders.