Making Sense of Adobe’s Risk Factors

Adobe (ADBE) provides digital media and marketing solutions. It is the maker of Photoshop software. Founded in 1982, Adobe is a component of the S&P 500, having first joined the index in 1997.

For its Fiscal Q4 2021 ended December 3, Adobe reported a 20% year-over-year increase in revenue to $4.11 billion and exceeded the consensus estimate of $4.09 billion. It posted adjusted EPS of $3.20, which rose from $2.81 in the same quarter of the previous year and matched the consensus estimate.

Adobe anticipates revenue of about $4.23 billion for its Fiscal Q1 2022 and adjusted EPS of $3.35. The consensus estimate calls for revenue of $4.34 billion and adjusted EPS of $3.38.

With this in mind, we used TipRanks to take a look at the risk factors for Adobe.

Risk Factors

According to the new TipRanks Risk Factors tool, Adobe’s main risk category is Tech and Innovation, representing 26% of the total 34 risks identified for the stock. Finance and Corporate and Macro and Political are the next two major risk categories, each accounting for 21% of the total risks.

In an updated Tech and Innovation risk factor, Adobe informs investors that the use of artificial intelligence technology in its products may raise social and ethical issues that could harm its business. The company explains that it is increasingly building AI into many of its products. But it cautions that AI presents many challenges.

Adobe says that if its AI-powered products draw controversy because of their impact on society, it may experience reputational damage and legal liability. The company goes on to say that government regulations related to AI may increase its cost burden, especially with regard to research and development. It also cautions that failure to address AI ethics issues could result in the public losing confidence in AI, which could slow down the adoption of its AI-powered products.

The Tech and Innovation risk factor’s sector average is 18%, compared to Adobe’s 26%. Adobe’s stock has gained about 6% over the past 12 months.

Analysts’ Take

Deutsche Bank analyst Brad Zelnick recently reiterated a Buy rating on Adobe stock but lowered the price target on Adobe to $660 from $715. Zelnick’s reduced price target still suggests 32.02% upside potential. Although still bullish on software industry fundamentals entering 2022, Zelnick advises a balanced approach and recommends greater valuation sensitivity compared to previous years.

Consensus among analysts is a Moderate Buy based on 17 Buys and 6 Holds. The average Adobe price target of $667.40 implies 33.50% upside potential to current levels.

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