Adobe’s (NASDAQ:ADBE) CFO boasted about the company’s “blowout quarter,” yet the market sold off the stock. Perhaps Adobe’s forward revenue guidance wasn’t extremely optimistic (although it was good, nonetheless), but there may be a buying opportunity here, as Adobe’s future still looks bright. Adobe is a famous name in the world of software, and the company’s recently released data was overwhelmingly positive. Nevertheless, financial traders had a negative reaction to Adobe’s announcement.
I am bullish on ADBE stock because Adobe’s financial data and even the outlook, which probably not everyone likes, aren’t too objectionable.
Adobe provides document, image, and security software, along with other products. As Adobe CEO Shantanu Narayen recently boasted, “The recent launches of Firefly, Express, Creative Cloud and GenStudio make Adobe magic available to millions of users.”
As you might expect, Adobe also has a new AI-compatible product. It’s the Firefly web application, and William Blair analyst Jake Roberge reiterated an Outperform rating on ADBE stock after the company announced the launch of Firefly. As we’ll discover, analysts are generally optimistic about Adobe, but this hasn’t stopped some short-term traders from dumping their Adobe shares. So, let’s dive deeper.
Adobe’s “Blowout Quarter”
After looking at Adobe’s financial results for the third quarter of Fiscal Year (FY) 2023 (which ended on September 1), I think you’ll agree that ADBE stock could be a long-term winner. Narayen touted the company’s AI angle, of course, saying, “We are unleashing a new era of AI-enhanced creativity around the world with innovations across our product portfolio.” In addition, as mentioned earlier, Adobe’s CFO Dan Durn declared that the company had a “blowout quarter,” and the numbers seem to back up this claim.
Here’s the lowdown on Adobe’s Q3-FY2023 results. The company generated $4.89 billion in revenue, up 10% year-over-year. As we’ll discuss momentarily, ADBE stock declined sharply after the company released its quarterly data. Is it possible that short-term stock traders were unimpressed with Adobe’s 10% sales growth? If so, then the market is truly spoiled and expects too much from today’s tech firms.
Furthermore, Adobe earned $4.09 per share during the reported quarter, beating Wall Street’s call for earnings of $3.98 per share. By the way, Adobe’s track record of exceeding analysts’ consensus quarterly EPS forecasts is absolutely stellar.
So far, so good, and Durn’s claim of a “blowout quarter” seems to be holding up. Besides, Adobe’s top- and bottom-line results could get even better in the coming quarters if its Firefly product sees success.
Why ADBE Stock is Under Pressure
All of this begs the question of why ADBE stock dropped after the company released these apparently positive results. I already proposed a theory that 10% sales growth isn’t good enough anymore, but there’s another contributing factor to consider.
Specifically, Adobe’s management guided for current-quarter revenue of $4.975 billion-$5.025 billion, as well as adjusted non-GAAP-measured profits of $4.10-$4.15 per share. In contrast, Wall Street called for $5 billion in revenue and earnings of $4.06 per share.
In other words, Adobe’s current-quarter profit outlook actually came in above the Street’s estimate, but the company’s revenue guidance was only in line with and not above the analysts’ forecast. Again, short-term traders can be quite spoiled and will sometimes accept nothing less than across-the-board big beats. Still, this isn’t a reason to sell ADBE stock, and I’m seeing a buying opportunity here.
Is ADBE Stock a Buy, According to Analysts?
On TipRanks, ADBE comes in as a Moderate Buy based on 18 Buys, eight Holds, and one Sell rating assigned by analysts in the past three months. The average Adobe stock price target is $602.05, implying 13.8% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ADBE stock, the most profitable analyst covering the stock (on a one-year timeframe) is Mark Moerdler of Bernstein, with an average return of 34.99% per rating and a 93% success rate. Click on the image below to learn more.
Conclusion: Should You Consider ADBE Stock?
As I see it, there’s nothing troubling about Adobe’s quarterly results or forward guidance. There might even be an argument that Adobe had a “blockbuster quarter” and a perfectly acceptable current-quarter financial outlook.
Therefore, I definitely think that investors should consider ADBE stock. If you’re the type of contrarian trader who likes to buy when others are selling irrationally, now is the time to conduct your due diligence on Adobe.
