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Adobe reports weaker guidance on key revenue metric for Q2; shares slump

Published 03/14/2024, 04:19 PM
Updated 03/15/2024, 09:15 AM
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Investing.com - Adobe Systems (NASDAQ:ADBE) reported softer-than-expected guidance on a key revenue metric for the current quarter, adding to concerns that rising competition is stifling growth.   

Adobe stock fell 12% in premarket trading early Friday, after closing Thursday at $540.75,.

For fiscal Q2, the company guided digital media net new revenue, a key metric, of $440 million, missing analyst estimates of about $460 million. Adjusted EPS was expected in a range of $4.35 and $4.40  on revenue of $5.25B to $5.30B, compared with analyst estimates of $4.39 on revenue of $5.31B.

"Adobe reported disappointing Q1 results and introduced uncertainty by not updating FY24E guidance for digital media net new ARR or EPS, which is a break from the past," said analysts at BpfA Securities, in a note dated March 14.

"A  tough comparison with the price increase was again cited as the reason for the softer upside. However, an intentional pivot to proliferation of AI for later monetization appears to be the real culprit," added BofA Securities.

The weaker guidance offset better-than-expected fiscal first-quarter results.

Adobe reported EPS of $4.48 on revenue of $5.18 billion. Analysts polled by Investing.com anticipated EPS of $4.38 on revenue of $5.14B.

Its digital media business saw revenue of $3.82B, up 12% year-over-year growth in Q1, with net new digital media annualized recurring revenue, or ARR, of $432M.

The company also announced a a new $25 billion stock buyback program.

BofA Securities keeps a 'buy' rating, adding that "while the monetization ramp is slower than anticipated, Firefly is one of the mostly widely used generative AI offerings, with potential for multiple paths to monetization (Firefly and others) later this year and over the longer term."

However, it does cut its 12-month price target to $640 from $700.

The results come ahead of the company's investor day on March 26, when the company is expected to unveil new products that could alleviate investor fears of rising competition from OpenAI's text-to-video generator, Sora. 

 

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