Shares of Adobe (ADBE) continued to be on a downward trajectory in trading on Friday after the software company’s disappointing earnings forecast raised concerns among analysts that the returns from its AI-focused initiatives would take time to materialize.
Adobe Issues Soft Guidance but Remains Optimistic
Despite this, significant investments in AI for image and video creation to stay ahead of competitors like Midjourney, Adobe’s fourth-quarter revenue guidance fell below estimates. Looking ahead, the company has guided for revenue between $5.5 billion and $5.55 billion, below analysts’ estimates of $5.6 billion.
However, the company remained optimistic, expecting to exceed its annual net new recurring revenue (NNARR) targets, indicating healthy subscription growth. NNARR is defined as the revenue gained from new customers, expansions, and upgrades, minus losses from churn or downgrades.
Wall Street Analysts Have Differing Views on the Soft Guidance
Following the company’s Fiscal Q3 results, five-star-rated JP Morgan analyst Mark Murphy echoed the same optimism about ADBE’s NNARR and stated that it was on track for year-on-year NNARR growth in Q4. Furthermore, the analyst added that ADBE was one of the few software firms showing strong new bookings.
As a result, Murphy reiterated a Buy on ADBE with a price target of $580, implying a 1.1% downside potential from current levels.
On the other hand, Bernstein analyst Mark Moerdler expressed concern that Adobe’s Q4 guidance was “underwhelming” despite solid Q3 results. Furthermore, the analyst added that there was a disconnect between the two quarters, and limited explanations on the earnings call left investors uneasy. Moreover, Moerdler emphasized that even if certain factors were beyond the management’s control, the company’s management needed to be more proactive in addressing factors that could cause market jitters.
Consequently, while the analyst kept a Buy rating on the stock, he lowered the price target to $644 from $660, implying an upside potential of 9.8% from current levels.
Is Adobe Stock a Buy, Sell, or Hold?
Analysts remain cautiously optimistic about ADBE stock, with a Moderate Buy consensus rating based on 19 Buys, three Holds, and two Sells. Over the past year, ADBE has increased by around 6%, and the average ADBE price target of $625.52 implies an upside potential of 6.6% from current levels.
