Adobe’s Stock Takes a Hit After Disappointing Q4 Results

Adobe (NASDAQ:ADBE) stock has dropped 15% in a week following the company’s Q4 earnings report for fiscal 2024. Despite surpassing expectations for revenue and profit, the guidance for fiscal 2025 did not meet investor hopes. The anticipated benefits from the company’s AI innovations have yet to materialize. Let’s explore Adobe’s recent performance and what it means for its stock valuation.

Q4 Performance Overview

In Q4, Adobe reported an 11% year-over-year revenue increase, reaching $5.6 billion, just above the expected $5.5 billion. Sales from the digital media segment grew 13%, while document cloud sales increased by 17% compared to the same period last year. The company is successfully transitioning many customers to higher-priced subscription plans, which is boosting average revenue per user. Nonetheless, the expected growth from Adobe’s advancements in AI has not yet significantly impacted overall revenues. Looking ahead, Adobe expects fiscal 2025 revenues to fall between $23.3 billion and $23.55 billion, shy of the consensus estimate of $23.78 billion.

Operating Margins and Share Buybacks

Adobe’s adjusted operating margin for Q4 was slightly lower at 46.3%, compared with 46.4% during the same quarter last year. The company also repurchased 4.6 million shares during the quarter. These factors contributed to a net income of $4.81 per share, up from $4.27 the previous year, and exceeding the expected $4.67. For fiscal 2025, Adobe anticipates adjusted earnings per share between $20.20 and $20.50, again falling short of the street’s expectation of $20.52.

Analyzing Adobe’s Stock Outlook

So far this year, ADBE stock has decreased by 20%, trailing behind the S&P 500’s 27% gain. Historically, ADBE stock has shown significant volatility, with returns of 13% in 2021, a drop of 41% in 2022, and a rebound of 77% in 2023. Conversely, the Trefis High Quality (HQ) Portfolio has proven to be more stable, outpacing the S&P 500 each year during this period. This resilience comes from a collection of 30 stocks that generates better returns with less risk.

As uncertainty lingers over the macroeconomic climate, including potential interest rate cuts, ADBE may again face challenges similar to those seen in 2021 and 2022. However, at its current trading price of $465, ADBE stock is valued at 11 times trailing revenues, compared to its average price-to-sales ratio of 14.6 times over the past five years. This suggests there may be considerable room for growth moving forward.

Comparing Adobe to Its Peers

To better understand Adobe’s prospects, it’s important to assess how the company stacks up against its competitors using essential performance metrics. For a detailed look at peer comparisons across various industries, please refer to Peer Comparisons.

[1] Returns as of 12/16/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.