Shares of Adobe (ADBE) are down nearly 5% in Friday’s trading session after the cloud software firm reported third-quarter earnings. Despite beating the analyst consensus, the substantial investments in AI have yet to pay off. And, the outlook for the final quarter left much to be desired.
Revenue for the quarter came in at $4.89 billion, barely outpacing analyst expectations. This did represent a 10% growth year over year, though. The adjusted earnings of $4.09 was well above the consensus of $3.98.
Both Digital Media and Digital Experience revenues were up 11% and 10% respectively, while net new annualized recurring revenue from digital media slid slightly from last quarter.
But looking ahead to the remainder of the year, Adobe is expecting 4th quarter revenue between $4.975 billion and $5.025 billion. This works out to earnings between $4.10 to $4.15 per share, which despite being above the analyst outlook, came as a disappointment.
CEO Shantanu Narayen says that despite not reaping the fruits of AI investment just yet, the company is on the brink of unleashing a new era of AI-enhanced creativity.
Innovations across the company’s product portfolio will still take a few years to come to fruition, but the excitement around how this shift could bring in new customers remains high. But, Wall Street doesn’t appear to share that same excitement – rather, impatience.
The company admits that it’s taking longer to see the benefits of the company’s efforts in AI than they’d have hoped. But, one analyst at JMP Securities, Patrick Walravens, remains upbeat on the stock. He says that the way Adobe has embraced generative AI is promising.
On an unrelated note, the company is still working through the logistics of acquiring Figma. The $20 billion acquisition is being assessed by global competition authorities. We first wrote about this news a year ago and we still have no resolution.
That being said, ADBE is in a much better position than it was this time last year – the stock is up 63% in that timeframe. But should investors be worried about the narrow guidance for the remainder of the year, the lag in AI returns, and the uncertainty surrounding Figma?
We’ve taken a look at the opportunity through the VectorVest stock analyzer and have 3 things you’ll want to take a look at before making your next move, whether you’re a current or prospective investor.
ADBE Has Good Upside Potential, Excellent Safety, and Fair Timing
The VectorVest system simplifies your trading strategy by giving you clear, actionable insights in just 3 simple ratings - saving you time and stress. These are relative value (RV), relative safety (RS), and relative timing (RT).
Each rating sits on a scale of 0.00-2.00 with 1.00 being the average for quick and easy interpretation. But it gets even easier. The system issues a buy, sell, or hold recommendation based on these ratings for any given stock, at any given time. As for ADBE…
- Good Upside Potential: The RV rating is a comparison between a stock’s long-term price appreciation potential (forecasted three years out) and AAA corporate bond rates and risk. As for ADBE, the RV rating of 1.13 is good.
- Excellent Safety: The RS rating speaks to a company’s risk level. It’s derived through an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, and business longevity. Right now, ADBE has an excellent RS rating of 1.49.
- Fair Timing: Despite falling 6% in the last week, ADBE still has a fair RT rating of 0.91 - just below the average. The rating is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year.
The overall VST rating of 1.19 is good for ADBE - is it enough to earn the stock a “buy” though? Don’t play the guessing game or let emotion cloud your judgment. Get a clear answer on your next move through a free stock analysis at VectorVest today.
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VectorVest advocates buying safe, undervalued stocks, rising in price. Even though ADBE beat the consensus on the top and bottom line in the 3rd quarter, shares are down on disappointment of AI return. But, the stock has good upside potential, excellent safety, and fair timing.
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