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Why Did Adobe’s Stock Slip Despite Upbeat Q2 Earnings?

Story Highlights

Adobe posted upbeat second-quarter Fiscal 2022 results on the back of outstanding performance across all segments. However, the company offered a bleak outlook for the third quarter as well as the full year of 2022.

Adobe (NASDAQ: ADBE) reported stronger-than-expected second-quarter Fiscal 2022 results, exceeding both earnings and revenue expectations. Notably, the results also surpassed the company’s guidance. 

Adobe, however, provided tepid third-quarter and full-year guidance. Following the update, shares of the provider of digital marketing and media solutions declined by almost 5% in the extended trading session on Thursday. 

Results in Detail 

Adobe reported adjusted earnings of $3.35 per share, topping the consensus estimate of $3.31. The company recorded adjusted earnings of $3.03 per share in the same quarter last year. Adjusted net income came in at $1.59 billion, up 9% year-over-year. 

Record total revenue of $4.39 billion grew 14% year-over-year and surpassed analysts’ expectations of $4.35 billion. The results were driven by a strong performance across all segments. 

Quarterly Segmental Revenue  

Revenue in the Digital Media segment increased 15% year-over-year to $3.2 billion, while Creative revenue jumped 12% to $2.61 billion. Additionally, Document Cloud revenue stood at $595 million, up 27%. 

Additionally, Digital Experience segment revenue came in at $1.1 billion, up 17%, with Digital Experience subscription revenue increasing 18% to $961 million. 

Interestingly, Digital Media Annualized Recurring Revenue (ARR) increased to $12.95 billion, while Creative ARR jumped to $10.82 billion. Furthermore, Document Cloud ARR grew to $2.13 billion. 

Other Metrics 

Exiting the second quarter, Remaining Performance Obligations (“RPO”) came in at $13.82 billion, while cash flow from operations was $2.04 billion. 

During the reported quarter, Adobe repurchased approximately 1.9 million shares at a total cost of $800 million. Currently, the company has a remaining repurchase authorization worth $9.5 billion. 

Official Comments 

In response to the reported results, Shantanu Narayen, the CEO of Adobe, said, “We are winning in our established businesses and seeing significant momentum in new categories from content authoring for a broad base of creators to PDF functionality on the web to the leading real-time customer data platform for global enterprises.” 

Encouragingly, Adobe CFO Dan Durn commented, “Our operating model continues to fuel consistent growth, enabling the company to invest in category-leading cloud solutions and emerging innovations that are gaining traction in the marketplace.” 

Guidance 

For the third quarter of Fiscal 2022, the company expects total revenue of $4.43 billion versus the consensus estimate of $4.51 billion. Furthermore, adjusted earnings are anticipated at $3.33 per share, compared with analysts’ expectations of $3.40. 

For Fiscal 2022, total revenue is expected to be $17.65 billion, below the consensus estimate of $17.85 billion. Furthermore, adjusted earnings are anticipated to be $13.50 per share, significantly less than analysts’ expectations of $13.67. 

For the third quarter and full year, Adobe expects double-digit revenue growth across all segments. 

Wall Street’s Take  

Consensus among analysts is a Strong Buy based on 21 Buys and five Holds. The average Adobe price target of $549.04 implies 50.4% upside potential. Meanwhile, shares have lost 33.79% over the past year. 

Website Traffic 

The earnings results were evident on TipRanks’ new tool that measures visits to Adobe’s website. Pre-earnings, we were able to see insights into Adobe’s performance in the second quarter.   

According to the tool, a website traffic uptrend was visible. In Fiscal Q2 2022, total visits to adobe.com showed an increasing trend, on a global basis, representing a 10.18% jump from the prior-year quarter.  

The predictions that were based on TipRanks’ website visits data turned out to be correct, with Adobe reporting upbeat results in Q2 2022. 

Bottom-Line 

Continued strong demand across various offerings by Adobe is expected to keep the momentum high in the second half of Fiscal 2022. Furthermore, the company’s increased investments and strong business model, along with new products and innovations, are likely to drive growth in the future. 

Alongside, based on website trends reflected on TipRanks’ Website Traffic Tool and high analyst ratings, investors might consider Adobe as a strong bet for their portfolio. 

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