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Adobe Faces Stock Plunge Despite Beating Earnings Expectations

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Adobe, under the ticker (NASDAQ: ADBE), saw its shares plummet by 11% in post-market trading on Thursday following the software companyโ€™s first-quarter fiscal 2024 earnings report. While the stock took a hit due to lower revenue guidance for the upcoming quarter, Adobe managed to surpass analyst expectations on both revenue and earnings for the first quarter.

The Numbers Behind Adobeโ€™s Performance

Metric Fiscal Q1 2023 Fiscal Q1 2024 Change
Revenue $4.66 billion $5.18 billion 11%
GAAP operating income $1.59 billion $907 million (43%)
Adjusted operating income $2.13 billion $2.47 billion 16%
GAAP net income $1.25 billion $620 million (50%)
Adjusted net income $1.75 billion $2.05 billion 17%
GAAP earnings per share (EPS) $2.71 $1.36 (50%)
Adjusted EPS $3.80 $4.48 18%

Data source: Adobe. GAAP = generally accepted accounting principles.

Adobeโ€™s revenue showed a 12% increase in constant currency compared to the previous year. Investors should pay closer attention to the adjusted figures, which exclude one-time expenditures. The GAAP numbers include costs linked to Adobeโ€™s failed acquisition attempt of Figma, a U.S.-based design platform.

The company managed to surpass Wall Streetโ€™s expectations with adjusted EPS and revenue for the first quarter, along with surpassing its own guidance.

Highlights from Adobeโ€™s Quarter

  • Digital media segment revenue saw a 12% growth year over year, totaling $3.82 billion, while digital experience segment revenue increased by 10% to $1.29 billion.
  • Creative revenue in the digital media segment rose by 11% to $3.07 billion, and document cloud revenue spiked by 18% to $750 million.
  • The digital media annual recurring revenue (ARR) stood at $15.76 billion at the end of the quarter.
  • Subscription revenue within the digital experience segment grew by 12% to $1.16 billion.
  • Remaining performance obligations (RPO) at the close of the quarter were reported at $17.58 billion.

Share Repurchase Plan and CEOโ€™s Statement

During the first quarter, Adobe repurchased approximately 3.1 million of its shares. Furthermore, the company announced a new stock repurchase authorization that allows the repurchase of up to $25 billion in common stock through March 14, 2028.

CEO Shantanu Narayen expressed in the earnings release, โ€œAdobe drove record Q1 revenue demonstrating strong momentum across Creative Cloud, Document Cloud and Experience Cloud. Weโ€™ve done an incredible job harnessing the power of generative AI to deliver groundbreaking innovation across our product portfolio.โ€

Generative AI has gained significant traction since the release of OpenAIโ€™s ChatGPT, enabling swift content generation across various input formats. While this technology aids in innovation, it also ushers in heightened competition.

Looking Ahead: Fiscal Q2 Guidance

For the second quarter of fiscal 2024, management outlined the following expectations:

  • Revenue between $5.25 billion to $5.3 billion and adjusted EPS ranging from $4.35 to $4.40.

While Q2 revenue guidance came in slightly lower than Wall Street estimates, the overall outlook remains robust. Investors need not fret over the marginal variance in guidance numbers compared to Street expectations.

In conclusion, despite the stock retreat post-earnings, Adobeโ€™s solid financial performance in Q1 and the promising outlook for Q2 position the company well for future growth.

Should you invest $1,000 in Adobe right now?

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*Stock Advisor returns as of March 11, 2024

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. The Motley Fool has a disclosure policy.

The opinions expressed in this article do not necessarily mirror the viewpoints of Nasdaq, Inc.

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