What Happened: Shares of creative software maker Adobe (NASDAQ:ADBE) fell 14.6% in the morning session after the company reported first-quarter results and provided revenue guidance for the next quarter, which fell below analysts' expectations as its net new digital media ARR guidance of $440 million fell short of analysts' $468 million forecast. Free cash flow also came in weaker, falling below Wall Street's estimates.
On the other hand, Adobe exceeded analysts' billings expectations during the quarter. Its net new digital media ARR of $432 million beat estimates of $415 million, enabling the company to top Wall Street's revenue and EPS projections.
During the earnings release, Adobe announced a new $25 billion share repurchase program.
Zooming out, this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely disappointed by its digital media segment guidance.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Adobe? Find out by reading the original article on StockStory.
What is the market telling us: Adobe's shares are quite volatile and over the last year have had 6 moves greater than 5%. But moves this big are very rare even for Adobe and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 9.3% on the news that the company reported fourth quarter results and provided full-year FY24 revenue guidance below estimates. In addition, management provided a weaker outlook for digital media net new ARR and digital experience subscription revenue.
On the other hand, Adobe topped analysts' revenue, adjusted operating income, and EPS expectations during the quarter. These beats were driven by outperformance in its digital media and digital experience segments.
Lastly, Adobe disclosed regulatory scrutiny over its subscription models. The company has been cooperating with the Federal Trade Commission (FTC) since June 2022 in response to an investigation into its disclosure and subscription cancellation practices, as revealed in a regulatory filing. The company added, "The defense or resolution of this matter could involve significant monetary costs or penalties and could have a material impact on our financial results and operations."
Overall, it was a weaker quarter for the company, given the weak guidance and the regulatory issue, which introduced an element of uncertainty.
Adobe is down 15.7% since the beginning of the year, and at $488.40 per share it is trading 23.1% below its 52-week high of $634.76 from February 2024. Investors who bought $1,000 worth of Adobe's shares 5 years ago would now be looking at an investment worth $1,902.