Adobe Slips On Weak Guidance, But …
The analysts began reeling in their estimates on Adobe (NASDAQ: ADBE) even before the Q1 earnings release and that activity has picked up momentum. There were 6 price target adjustments leading into the release and 9 so far in its wake and all are weighing on share prices now. Of the 15 commentaries, 14 include price target reductions and 1 a price target increase but to a level well below the consensus.
The new Pricetargets.com consensus price target for Adobe is $612 and 31% above the recent price action but we think it will come down a bit more before the reporting cycle. The range of targets among the latest commentaries is $455 to $625 and includes the new low price target, a target that assumes a small amount of downside for the stock. The takeaway, however, is that the analysts are still firmly Bullish in their sentiment and are supporting the price action. Their sentient coincides with the institutional activity as well, an activity that has netted 3.6% of the market cap over the last year and 2.0% within the first quarter of 2022. This brings total institutional ownership up to 82.7% and growing.
Adobe Writes Off Russian, Ukrainian Business
Adobe had a good quarter and even issued favorable guidance but the guidance is below consensus. As for the Q1 results, the company produced $4.26 billion in net revenue for a gain of 9% over last year and a company record. The revenue also beat the Pricetargets.com consensus rating by 50 basis points but a small margin and one that suggests company performance was priced into the market. On a segment basis, Document Cloud led with a gain of 17% followed by Digital Media’s 9% gain and a 7% gain in Creative.
Moving down, the company’s margins shrank on a YOY basis but slightly less than forecast. This left operating income at $1.58 billion and 37.10% of revenue. On the bottom line, the GAAP and adjusted EPS both increased on a YOY basis and above consensus but there is also the impact of share repurchased to consider. The company’s $3.37 in adjusted earnings is up $0.23 from last year and beat by $0.03 with the share count down by 1.66%.
Turning to the guidance, the guidance fell short of the consensus but there is a mitigating factor. While the company is looking for revenue and earnings slightly below the Pricetargets.com consensus it is due in large part to business in Russia, Belarus, and Ukraine, business that has been completely written off. The company estimates the business to be worth $75 million in F22 or about 45 basis points of Q1 revenue.
“Adobe’s Q1 results reflect the company’s strong execution and resilience through unprecedented circumstances,” said Dan Durn, executive vice president and CFO, Adobe. “Our momentum, product innovation and immense market opportunity position us for success in 2022 and beyond.”
The Technical Outlook: Adobe Might Be At The Bottom
Shares of Adobe have been in a correction since November 2022 and may have hit a bottom. Price action began bottoming prior to the release and may continue to trace out a pattern in the near term. Price action is in retreat following the Q1 release but we think the pullback will be met by buyers. Assuming this is true, we expect to see price action move sideways at the current level with a chance of forming a reversal later in the year. If price action falls below $408 and does not snap back the downtrend may not be over. In that scenario, a move to $300 is not out of the question.
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