Shares of the software company Adobe (NASDAQ:ADBE) dipped about 5% in Wednesday’s after-hours of trading despite reporting better-than-expected Q4 results. The company revealed that the FTC (Federal Trade Commission) has been investigating the company’s disclosure and subscription cancellation practices, leading to a decline in the share price. Also, ADBE’s weak revenue guidance contributed to increased pressure on its stock price.
Let’s dig deeper.
Q4 Results and Disappointing Outlook
Adobe delivered better-than-expected Q4 earnings on December 13. Its adjusted EPS of $4.27 surpassed the Street’s forecast of $4.13. The company achieved revenue of $5.05 billion, up 13% year-over-year. Further, its top line came ahead of the Street’s forecast of $5.01 billion.
However, its Q1 revenue outlook fell short of expectations. Adobe expects total revenue between $5.10 billion and $5.15 billion for the first quarter of Fiscal 2024, slightly missing the analysts’ consensus estimate of $5.16 billion.
Looking ahead to the full year, Adobe forecasts its total revenue to be in the range of $21.30 billion to $21.50 billion, which is lower than analysts’ expectations of $21.73 billion. Additionally, the company projects its adjusted EPS for the year to be between $17.60 and $18.00. The midpoint of this range is $17.80, which is below the Street’s estimate of $18 per share.
The FTC Investigation
Adobe has been cooperating with the FTC staff since June 2022 in response to a CID (Civil Investigative Demand) related to its disclosure and subscription cancellation practices. However, in November 2023, the FTC said they had the authority to engage in consent negotiations to explore the possibility of reaching a settlement regarding their investigation.
Nonetheless, Adobe asserts that its practices align with legal requirements, and the company is currently in discussions with the FTC staff. However, Adobe has cautioned that the defense or resolution of this matter may entail significant financial costs or penalties, which could have a material impact on the company’s financial results and operations.
Is Adobe Stock Expected to Go Up?
Analysts’ average price target suggests Adobe stock has limited upside potential. Meanwhile, analysts remain cautiously optimistic about its prospects.
With 21 Buy, six Hold, and one Sell recommendations, Adobe stock has a Moderate Buy consensus rating. Further, analysts’ average price target of $635.31 implies 1.77% upside potential from current levels.
