Wall Street continues to be cautiously bullish on Adobe. here’s why
Shares of software company Adobe (NASDAQ: ADBE) are down 32.3% year-to-date amid a tech selloff as investors seek safer value bets amid rising interest rates. Additionally, Adobe’s lackluster outlook for the fiscal third quarter also impacted investor sentiment. While a challenging environment is expected to weigh on the company’s near-term performance, Wall Street analysts remain optimistic about Adobe’s long-term growth opportunities.
Adobe offers a wide range of software solutions, including creative, marketing, and document management tools.
Adobe advice reflects near-term pressures
Adobe’s revenue in the second quarter of FY22 (ended June 3, 2022) increased 14% to $4.39 billion. Revenue benefited from strong demand for the company’s Digital Media and Digital Experience offerings, driven by the companies’ ongoing digital transformation. Adjusted EPS rose nearly 11% to $3.35.
Despite positive second-quarter results, investors were disappointed by the company’s third-quarter guidance, which reflected the impact of currency headwinds and summer seasonality. The outlook also included the impact of the company’s decision to cease sales to Russia and Belarus.
Adobe forecasts FY22 revenue of $17.65 billion (reflecting nearly 12% growth), driven by an estimated 12% increase in revenue from the digital media segment and an increase of 14 % of digital experience segment revenue.
The Taking of Wall Street
Many analysts lowered their price target for Adobe shares after the company issued a dismal outlook for the third quarter of FY22.
Mizuho Securities analyst Gregg Moskowitz noted that the third quarter guidance was much worse than expected and reflects a notable quarter-over-quarter decline in net annual recurring revenue from digital new media due to a more pronounced summer seasonality and higher headwinds.
Moskowitz added that while it’s interesting that Adobe is expecting a materially better fourth quarter, however, given the current environment, he “would expect a lot of skepticism until he proves the opposite”. Analysts find the fourth quarter outlook “puzzling” but continue to believe Adobe is very well positioned to benefit from digital transformation.
Moskowitz cut his price target to $480 from $530 and maintained a buy rating on Adobe stock.
Overall, Adobe earns Street’s Strong Buy Consensus Rating based on 17 purchases and four reservations. The average Adobe price target of $458.67 implies an upside potential of 19.40% from current levels.
Tying technology together
Most Wall Street analysts are looking beyond the near-term pressures Adobe faces and are optimistic about the company’s future growth based on continued demand for its creative and marketing solutions. The ongoing digital transformation of businesses bodes well for Adobe. With a strong underlying business model and continued innovation, Adobe is poised to capture additional business in a huge addressable market worth over $200 billion.
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