Bear of the Day: Adobe (ADBE) | Digital Marketing Technology| Digital Marketing Trends

today is Sep 25, 2022

Adobe Inc. ( ADBE - Free Report) , based in San Jose, California, is one of the largest software companies in the world. The company operates through three segments—Digital Media, Digital Experience, and Publishing—while the bulk of its revenue is formed through licensing fees from customers; Adobe also offers technical support and education services.

Soft Guidance Hurts ADBE

Shares of Adobe slumped 10% following the release of its fiscal fourth quarter earnings results, though the company delievered meaningful growth on both the top and bottom line.

Revenue jumped 20% year-over-year to $4.1 billion, and sales for its creative, digital media, digital experience, and document cloud divisions increased 19%, 21%, 23%, and 29%, respectively.

These revenue gains helped Adobe generate gross profit growth of $3.6 billion, also up 20%. Adjusted operating income and earnings moved 21% and 14% higher to $1.5 billion and $3.20 per share.

Guidance for fiscal 2022 was muted, however. Management expects total sales to increase by about 13% to $17.9 million, with adjusted EPS to increase 10% to $13.70 per share. Wall Street was looking for revenue of $18.2 billion and EPS of $14.26.

Because of this lowered outlook, analysts largely cut their price targets on ADBE, with some wondering if Adobe will be able to maintain its historically strong growth rate moving forward.

Bottom Line

ADBE is a Zacks Rank #5 (Strong Sell).

10 analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 46 cents to $13.72 per share; Adobe’s earnings are expected to grow about 10% for fiscal 2022, with sales up over 13% for the same period.

Shares of Adobe are down 13.8% over the last six months, due in large part to the broad-based tech sell-off.

Adobe Inc. Price and EPS Surprise

A report from UBS in January added to the stock’s woes.

The bank cut its rating on Adobe, downgraded shares to neutral because of “2022 growth concerns.” UBS said its was “disappointed” with Adobe’s growth figures for the past few quarters, and it’s worried that "front-office/marketing tech spend" got "pulled-forward in 2020/2021." If that’s the case, it means that Adobe’s growth in those years was artificially inflated, and borrowed from expansion that would have otherwise happened in 2022.

These warnings from Wall Street, coupled with a tough trading environment for high-flying growth stocks, have led investors to reevaluate ADBE. After its recent slide, shares now trade at a forward P/E of 46.7X.

Adobe shares may continue to experience even more wild ups and downs as tech stocks continue to sell off, so potential investors should proceed with caution.

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