Adobe Shares Decline on Disappointing Revenue Guidance

Adobe shares experienced a decline in late trading on Wednesday after the company provided revenue guidance for the upcoming February quarter and the full fiscal year ending in November 2024, which fell short of expectations.

Although Adobe reported strong early adoption for its suite of AI-powered content creation tools, Wall Street anticipated a larger boost to near-term revenue. In response, Adobe stated that its provided guidance reflects the current macroeconomic and foreign exchange environments.

During the fiscal fourth quarter that ended on December 1st, Adobe achieved a revenue of $5.05 billion, marking a 12% increase compared to the previous year. This figure fell within the company's guidance range of $4.975 billion to $5.025 billion and was in line with the Wall Street consensus of $5 billion. Notably, this quarter was the first time Adobe recorded revenue above $5 billion.

Adjusted earnings per share for the quarter reached $4.27, surpassing both the company's forecast of $4.10 to $4.15 and the Street consensus of $4.13. Under generally accepted accounting principles, earnings per share for the company amounted to $3.23.

In terms of segment revenue, Adobe generated $3.72 billion from its core digital media segment during the quarter, showing a 13% increase. This result slightly exceeded the company's guidance range of $3.67 billion to $3.7 billion. Additionally, digital experience segment revenue amounted to $1.27 billion, representing a 10% increase and falling within Adobe's guidance range of $1.25 billion to $1.27 billion.

However, looking ahead to the February quarter, Adobe forecasts revenue between $5.1 billion and $5.15 billion, slightly below the previous Wall Street consensus of $5.16 billion.

On an adjusted basis, Adobe projects profits for the quarter of $4.35 to $4.40 per share, surpassing the consensus estimate of $4.26 per share.

Adobe's Digital Media and Experience Revenue Fall Short of Expectations

Adobe recently released its revenue forecast for the quarter, and it fell slightly below the Street estimate. The digital media segment is expected to generate revenue between $3.77 billion and $3.8 billion, while the consensus was $3.82 billion. Similarly, the digital experience segment revenue is projected to be in the range of $1.14 billion to $1.16 billion, missing the Street consensus of $1.31 billion.

However, the company is still optimistic about its net new digital media annualized recurring revenue, which is predicted to reach $410 million. This measure reflects the company's subscription business and surpasses the consensus of $396 million.

Looking ahead to fiscal year 2024, Adobe expects its revenue to range from $21.3 billion to $21.5 billion. While this falls short of the Street consensus at $21.7 billion, the company remains confident in its non-GAAP profits, targeting a range of $17.60 to $18 per share. The midpoint of this range is slightly below Wall Street's estimate of $17.99 per share.

The guidance provided by Adobe indicates expectations for digital media revenue between $15.75 billion and $15.85 billion, which is slightly below the consensus of $15.96 billion. Similarly, the digital experience revenue is projected to be between $5.275 billion and $5.375 billion, falling short of the consensus at $5.478 billion. However, Adobe's new digital media ARR is anticipated to be approximately $1.9 billion, aligning with estimates.

In relation to Adobe's pending acquisition of Figma, a collaborative design tool company, the company expressed its disagreement with preliminary findings from both the European Commission and U.K. regulators regarding competitive concerns. The European Commission is expected to issue a decision by February 5, while the U.K.'s deadline is February 25.

CEO Shantanu Narayan emphasized the "tremendous usage" of the AI tools that Adobe introduced earlier in the year. He believes that "every massive technology shift" presents opportunities to deliver new products and solutions to an expanding customer base. Adobe has successfully executed this strategy as customers are now actively utilizing the groundbreaking innovations.

-Eric J. Savitz