Shares of creative software provider Adobe (ADBE) sank in after-hours trading after the company reported earnings for its third quarter of Fiscal Year 2024 that was followed by soft guidance. Adjusted earnings per share came in at $4.65, which beat analysts’ consensus estimate of $4.53 per share.
Don't Miss Our Christmas Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Sales increased by 10.6% year-over-year, with revenue hitting $5.41 billion. This also beat analysts’ expectations of $5.373 billion. The bulk of the revenue, and the main growth driver, came from Adobe’s Digital Media segment, which grew 11% year-over-year to $4 billion.
Meanwhile, buybacks also helped push the EPS figure past estimates. During the third quarter, 5.2 million shares were repurchased by the company, therefore slightly increasing the share of the profits to the remaining investors. Adobe regularly repurchases its shares each quarter.
Guidance for Q4 2024
Looking forward, management has provided the following guidance for Q4 2024:
- Revenue of between $5.5 billion and $5.55 billion versus analysts’ estimates of $5.6 billion.
- Adjusted EPS in the range of $4.63 to $4.68 compared to analysts’ estimates of $4.67.
As we can see, the company’s outlook is worse than expected, as revenue was a total miss, and the midpoint of the EPS range was below estimates. This is what led to the after-hours move in the stock price.
Investor Sentiment for ADBE Stock Is Currently Positive
The sentiment among TipRanks investors was Positive heading into the earnings report. Out of the 756,064 portfolios tracked by TipRanks, 1.8% hold ADBE stock. In addition, the average portfolio weighting allocated towards ADBE among those who do have a position is 4.88%. This suggests that investors of the company are fairly confident about its future.
Furthermore, in the last 30 days, 1.4% of those holding the stock increased their positions. As a result, the stock’s sentiment is above the sector average, as demonstrated in the image below. Nevertheless, it will be interesting to see if this sentiment changes going forward after today’s disappointing guidance.
Is Adobe a Buy, Hold, or Sell?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ADBE stock based on 21 Buys, three Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 3% year-to-date decline, the average ADBE price target of $624.17 per share implies 8.14% upside potential. However, it’s worth noting that estimates will likely change following today’s earnings report.
