Adobe raised its financial forecasts for the fiscal year.
Daniel Acker/Bloomberg
Adobe shares seem largely unresponsive to what appeared to be better-than-expected financial results as investors weigh what is coming next for a software company that got a clear boost in demand from the pandemic.
For its fiscal first quarter, ended March 5, the company reported revenue of $3.91 billion, up 26% from a year ago and ahead of its own projection of $3.76 billion. Adjusted profits, not prepared according to generally accepted accounting principles, were $3.14 a share, likewise ahead of the $2.78 management had told investors to expect.
The company also increased its financial forecasts for the full year ending in November. Adobe (ticker: ADBE) now sees revenue of $15.45 billion, up from a previous forecast of $15.15 billion, with non-GAAP profits of $11.85 a share, up from a previous estimate of $11.20 a share.
Adobe also announced that Chief Financial Officer John Murphy plans to retire this year to spend more time focused on family, friends, and philanthropy.
Analysts upbeat on the stock found a lot to like in the quarter’s results, but the shares were down 1%, at $455.43, in early afternoon.
Morgan Stanley analyst Keith Weiss on Wednesday reiterated his Overweight rating on Adobe, and raised his target for the stock price to $575, from $560. Weiss said the results show the company is operating on all cylinders, pointing to better-than-expected growth for both the digital-media segment and the digital-experience operation.
Digital media includes applications such as Photoshop and Illustrator, while the digital-experience segment offers analytics and marketing tools. He wrote that the results reflect both an improving spending environment for digital marketing, and effective execution by the company.
The higher full-year forecast reflects “a high level of conviction by management of building momentum in the business,” Weiss wrote.
Evercore ISI analyst Kirk Materne reiterated his Outperform rating and $550 target, but he noted a few points skeptics about the company might raise. First, the quarter had one more week than the year-earlier period, which he said could have boosted revenue by 8%. And he said moves in foreign-exchange rates lifted revenue by about 1.5%.
Still, he said, “the momentum in the business is strong … and the primary reason for the upside to full year guidance is due to accelerating trends in both the Digital Media and Experience Cloud businesses.” He argued that Adobe’s relatively weak performance this year—the stock is down about 9% since the end of 2020—“sets up an attractive relative opportunity in one of the best compounding stories in software.”
Citi analyst Tyler Radke was more wary, keeping a Neutral rating and a target of $523 for the stock price. Radke said his caution reflects uncertainty about whether the a boost to demand from creative and design customers working from home will fade, and whether churn could increase as the economy reopens. He noted that the company will face tougher earnings comparisons in coming quarters because the year-earlier numbers were boosted by the pandemic.
Write to Eric J. Savitz at [email protected]
