Adobe (NASDAQ:ADBE) investors headed into the weekend on a downbeat note, with shares plummeting 9% during Friday’s session. Although the creative software giant reported solid fiscal third-quarter results (August quarter), its forward guidance left investors underwhelmed.
The company generated revenue of $5.41 billion in the quarter, representing a 10.6% year-over-year increase and beating the forecast by $40 million. Importantly, Adobe also exceeded expectations with DM (Digital Media) NNARR (net new annual recurring revenue), a key metric, which reached $504 million, ~$44 million ahead of the analysts’ forecast. At the bottom-line, adj. EPS of $4.65 also fared better than consensus – by $0.11.
Those good results, however, were countered by a disappointing outlook that explains investors’ negative reaction. For FQ4, the company expects adj. EPS between $4.63 and $4.68 and revenue in the range between $5.5 billion and $5.55 billion, both below the prognosticators’ forecast of $4.67 and $5.61 billion, respectively.
Nevertheless, Jefferies analyst Brent Thill believes there is reason to remain optimistic about Adobe’s positioning, especially within the AI-driven landscape.
“While timing of large deals and Cyber Monday is a factor, we also see extra conservatism vs. seasonality and given accelerating AI usage, we believe FY25 could be the year of monetization as we expect to see usage limits enforced and as ADBE expects to charge for video gen AI shortly after GA,” Thill noted.
Echoing this view, Wells Fargo analyst Michael Turrin adds, “[We] continue to view ADBE as one of best ways to play GenAI in software w/potential for re-rate as narrative rounds into form.”
So, down to business, what does this all mean for investors? Both Thill and Turrin rate ADBE a Buy, along with a $700 price target. The figure suggests the stock will notch gains of 31% over the next year.
Overall, the stock claims a Moderate Buy consensus rating, based on a mix of 20 Buys, 5 Holds and 2 Sells. At $618.38, the average price target makes room for 12-month returns of ~15.5%. (See Adobe stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
