Shares of Adobe (NASDAQ:ADBE) are down more than 2.5% in premarket trading Wednesday after the company reported a weaker-than-expected Q2 forecast.
For the first quarter, Adobe reported an adjusted EPS of $3.37, up from $3.14 in the year-ago period and slightly above the consensus estimates of $3.34. Revenue came in at $4.26 billion in the quarter, up 9.1% YoY and compared to the analyst consensus of $4.24 billion.
Adobes Q1 results reflect the companys strong execution and resilience through unprecedented circumstances, said Dan Durn, CFO of Adobe.
Digital media revenue hit $3.11 billion, up 8.7% YoY, and in line with analyst expectations. Digital experience revenue came in at $1.06 billion, up 13% YoY and just above the consensus projection of $1.04 billion.
For the second fiscal quarter, Adobe expects adjusted EPS of about $3.30, below the consensus estimates of $3.35 per share. The company expects revenue of about $4.34 billion in FQ2, missing the analyst expectations of $4.4 billion.
Adobe expects Digital Media revenue to rise around 13% in the quarter and estimates Digital Experience segment revenue and Digital Experience subscription revenue to grow about 15% and 17%, respectively.
The company also said it has reduced its Digital Media ARR balance by $75 million, which practically represents Adobes ARR for existing business in Russia and Belarus. Additionally, Adobe reduced ARR by an additional $12 million for its Digital Media services in Ukraine while it will continue to operate in this country.
These actions result in a total ARR cut of $87 million and an expected revenue impact of $75 million for fiscal year 2022, the company added.
Goldman Sachs analyst Kash Rangan lowered the price target on Adobe to $605.00 per share from $700.00. The analyst believes the company can still double its revenues in the long-term to potentially enter the top ranks of software companies to reach $40bn+ of revenues.
He shares four reasons why he remains positive on ADBE stock.
We remain positive on ADBE given: 1) Net new ARR of $418mn likely met investor expectations, coming above the company's guide of $400mn despite Creative ARR (the largest component) flattish y/y adjusting for duration and FX. 2) Pricing optimization, product segmentation and Creative Cloud Express are possible growth levers. Document Cloud pricing changes starting in 2Q are another positive. 3) Underlying business dynamics remain strong with new logo adds, improving user retention and seat growth. 4) While we acknowledge the implications of the Ukraine/Russia conflict, (75mn headwind to FY22 revenue+ $85mn drag on ARR + ~6 cent/share/quarter EPS drawdown) we note these changes are less operational changes and demand remains strong across various market segments, Rangan wrote in a client note.
Stifel analyst Parker Lane has maintained a Buy rating and $600.00 target price on ADBE shares following a beat quarter.
We believe ADBE is well positioned for continued penetration of its TAM and can effectively navigate these near-term headwinds, Lane said in a client note.
Similarly, BMO analyst Keith Bachman sees Adobe stock as attractively valued, particularly relative to our expectations for mid-teens FY23 growth.
By Senad Karaahmetovic