Adobe Stock Dives on Disappointing Outlook

Key Takeaways

• Adobe reported fiscal third-quarter earnings and revenue that topped expectations.
• However, its outlook for the fourth quarter missed analysts’ estimates.
• Adobe shares tumbled in extended trading Thursday following the company’s earnings release.

Adobe (ADBE) shares tumbled in extended trading Thursday after the company’s fiscal fourth-quarter outlook fell short of analysts’ expectations.

The software company said it anticipates revenue of between $5.50 billion and $5.55 billion for the fourth quarter, below estimates compiled by Visible Alpha. It projected diluted earnings per share (EPS) of $3.58 to $3.63, with analysts expecting the higher end of that range.

Outlook Overshadows Strong Q3 Results

Adobe’s weaker-than-expected outlook overshadowed an otherwise strong report, with third-quarter results that topped estimates. Adobe posted third-quarter revenue of $5.41 billion, an 11% jump year-over-year, and EPS of $3.76, up from $3.05 a year earlier.

Adobe’s Digital Media arm, which includes Creative Cloud subscriptions, posted record net-new annualized recurring revenue (ARR) of $504 million, an 8% year-over-year rise and also above analysts’ projections.

“Adobe’s record Q3 performance is a testament to our relentless innovation and commitment to delivering value to our customers,” Adobe CEO Shantanu Narayen said in a release, noting Adobe’s “advancements in AI across Creative Cloud, Document Cloud, and Experience Cloud.”

Adobe shares fell more than 9% in extended trading Thursday following the company’s earnings report.

Overall, Adobe’s third-quarter results were impressive, with revenue and EPS exceeding expectations. The company’s Digital Media arm, which includes popular subscriptions like Creative Cloud, also performed well, surpassing analysts’ projections. However, the disappointing fourth-quarter outlook caused Adobe’s stock to plummet in after-hours trading.

Strong Q3 Performance

Adobe’s third-quarter revenue of $5.41 billion marked an 11% increase compared to the previous year. This growth can be attributed to the success of Adobe’s Digital Media arm, which saw record net-new annualized recurring revenue (ARR) of $504 million. This represents an 8% year-over-year rise and exceeded analysts’ expectations.

Adobe’s CEO, Shantanu Narayen, attributed the company’s strong performance to its continuous innovation and commitment to delivering value to customers. He highlighted Adobe’s advancements in artificial intelligence (AI) across its various cloud platforms, including Creative Cloud, Document Cloud, and Experience Cloud.

Disappointing Fourth-Quarter Outlook

Despite the impressive third-quarter results, Adobe’s stock took a hit due to its weaker-than-expected fourth-quarter outlook. The company projected revenue between $5.50 billion and $5.55 billion, falling short of analysts’ estimates. Additionally, Adobe’s diluted EPS guidance of $3.58 to $3.63 was lower than what analysts had anticipated.

This disappointing outlook dampened investor sentiment and led to a significant drop in Adobe’s stock price during after-hours trading.

Investor Reaction

Following the release of Adobe’s earnings report, the company’s stock experienced a sharp decline of more than 9% in extended trading. Investors were particularly concerned about the weaker fourth-quarter outlook, which raised doubts about Adobe’s ability to sustain its growth momentum.

However, it’s important to note that stock price fluctuations in after-hours trading may not always reflect the long-term prospects of a company. Investors should consider the overall financial health and future prospects of Adobe before making any investment decisions.

Conclusion

Adobe’s third-quarter earnings and revenue exceeded expectations, driven by the strong performance of its Digital Media arm. However, the company’s weaker fourth-quarter outlook caused its stock to plummet in after-hours trading. Investors should carefully evaluate Adobe’s long-term prospects and consider the overall financial health of the company before making any investment decisions.

Read the original article on Investopedia.