Nandini Roy Choudhury, writer
Brief news
- Adobe’s Q3 revenue reached $5.41 billion, an 11% year-over-year increase, but its fourth-quarter guidance led to an 8% drop in shares.
- Analysts noted the company’s strong core business, driven by AI adoption, despite a disappointing outlook.
- Bank of America and Goldman Sachs maintain positive ratings, suggesting the market reaction may be exaggerated.
Detailed news
The software company’s third-quarter results, which provided less-than-expected guidance for the fourth quarter, prompted a more than 8% decline in Adobe shares on Friday.
According to LSEG, Adobe’s revenue for the quarter was $5.41 billion, an 11% increase from the previous year and higher than the $5.37 billion anticipated by analysts. The company’s net income for the period increased from $1.40 billion, or $3.05 per share, in the previous year to $1.68 billion, or $3.76 per diluted share.
Adobe predicted that its fourth quarter revenue would fall within the $5.50 billion to $5.55 billion range, and that its earnings per share would fall within the $4.63 to $4.68 range. LSEG’s analysts anticipated a forecast of $5.61 billion in sales and $4.67 in earnings per share.
Goldman Sachs analysts reiterated their buy rating and $640 price target for the stock. According to them, the strength of Adobe’s core business was obscured by its disappointing outlook. They also noted that the business is being supported by the adoption of artificial intelligence and that its key growth drivers are “stable.”
Investors are likely to be apprehensive about the impact of the guidance on the impending DM FY25 guidance and uncertain about the business’s maturity. However, we are of the opinion that this reaction is exaggerated, as stated in a note from Friday.
According to analysts at Bank of America, Adobe’s results and outlook were somewhat inconsistent, but they were generally robust.
They contended that Adobe is the sole company, with the exception of Microsoft, that is “driving meaningful AI generation” at this juncture.
They wrote in a note on Friday that they had not changed their positive opinion of Adobe. “Despite our expectations for a more favorable Q4 digital media outlook, our FY26 estimates continue to increase due to the more evenly distributed strength of the creative cloud and document cloud.”
Adobe’s fourth-quarter outlook is “uninspiring,” according to analysts at UBS. However, they believe that the current sell-off has been exaggerated.
They wrote on Friday, “The print was not a disaster in our opinion.”
Source : CNBC News
