Adobe: Modest Forecasts Overshadow Record Results – Is Now the Time to Buy?
2024.09.17 11:18
- Adobe was hammered in the market following soft sales forecasts.
- Adobe reported Document Cloud revenue of $807 million, up 18% year over year.
- Should you consider buying the dip?
Traders sent shares of Photoshop software maker Adobe (NASDAQ:) lower on Friday after the company released its quarterly results and forward guidance the previous day. This could prove to be a prime buying opportunity as Adobe’s actual results beat Wall Street’s expectations, and the company’s outlook wasn’t extremely pessimistic.
Generally speaking, investors are starting to question whether artificial intelligence (AI) technology businesses are worth their lofty valuations. Thus, the market waited nervously for Adobe’s Q3 fiscal 2024 results on Thursday afternoon.
The results were solid and came in above analysts’ targets. Yet, anxious traders apparently found an excuse to dump their Adobe shares the next day — and as an informed investor, you might want to buy what the Nervous Nellies are selling.
Adobe Reports Record Revenue and More
Truth be told, Adobe’s results for the third quarter of fiscal 2024 are unassailable. CEO Shantanu Narayen touted Adobe’s “record Q3 performance,” and rightly so.
First of all, the company generated a record third fiscal quarter revenue of $5.41 billion, up 11% year over year. This result edged out the analysts’ consensus call for $5.37 billion in quarterly revenue.
Second, the company achieved net income of $1.684 billion, a notable improvement over the $1.403 billion that Adobe earned in the year-earlier quarter. In addition, Adobe reported adjusted (non-GAAP) earnings of $4.65 per share in Q3 of FY2024, handily beating the $4.53 per share that Wall Street had anticipated.
Narayen focused on the AI technology angle, citing Adobe’s “groundbreaking advancements in AI across Creative Cloud, Document Cloud, and Experience Cloud.” To support the CEO’s point, Adobe reported Document Cloud revenue of $807 million, up 18% year over year.
Adobe Stock and Potentially Overstated Fear
Despite these solid quarterly results, the stock cratered 9% in afternoon trading on Friday. Apparently, skittish traders disregarded Adobe’s actual results and instead concentrated on the company’s current-quarter guidance (or “targets,” as Adobe called them).
For the fourth quarter of fiscal 2024, Adobe is targeting revenue of $5.5 billion to $5.55 billion; the midpoint would be $5.525 billion. In contrast, Wall Street’s analysts modeled $5.6 billion in revenue.
Moreover, the company hopes to earn $4.63 to $4.68 (adjusted/non-GAAP) per share in Q3 of FY2024, with the midpoint estimate being $4.655 per share. Meanwhile, analysts called for earnings of $4.67 per share.
Note that Adobe’s current-quarter adjusted EPS estimate range midpoint almost exactly matches Wall Street’s consensus estimate. Also, the midpoint of Adobe’s revenue forecast range is lower than Wall Street’s estimate, but not by a very wide margin.
Focus on What’s Real
The company demonstrated measurable improvement in key areas, including the company’s Document Cloud revenue, which relies on AI technology to a certain extent. Nevertheless, some short-term traders chose to obsess over Adobe’s current-quarter outlook, which isn’t extremely different from what analysts called for.
Thus, level-headed investors should consider focusing on what’s real (i.e., the actual facts) instead of staying up at night worrying about Adobe’s guidance. If you’re in the market for AI tech exposure with an established and growing software giant, consider taking a share position in Adobe stock.
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