Adobe Shares Dip After-Hours On Soft Guidance — But Analyst Foresees 'Meaningful Upside' In 2024 On Generative AI Momentum

Adobe, Inc. ADBE witnessed a 5% drop in after-hours trading as the company provided a less-than-stellar fiscal year 2024 guidance. However, Piper Sandler analyst Brent Bracelin maintained an Overweight rating with a $650 price target.

Adobe’s Performance:

Bracelin highlighted Adobe’s robust fourth-quarter results, citing four consecutive quarters of 13% currency-neutral growth. This quarter marked the company’s first-ever $5 billion-plus revenue, breaking a two-year moderation trend.

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Market Reaction:

Despite the positive performance, Adobe experienced a post-earnings sell-off due to underwhelming guidance and heightened investor expectations. The stock’s impressive 86% year-to-date climb surpassed the S&P 500 Index’s 23% gain, contributing to the market’s reaction.

Key Highlights Noted By Analyst:

• Digital media annual recurring revenue surpassed expectations, fueled by substantial subscriber growth and innovative product launches.
• Strong operating efficiency, particularly in spending discipline, led to record earnings per share, exceeding estimates.
• Adobe’s generative AI momentum persisted, with Firefly generating over 4.5 billion images. The broader availability of Firefly, along with the combination of Firefly and Express, facilitated robust Creative Cloud adoption, especially in the mid-market and enterprise segments.
• Document Cloud’s annual recurring revenue continued to exhibit healthy growth.

Future Outlook:

Bracelin anticipates significant benefits from price increases, initiated in November, to materialize in the latter half of 2024. The company foresees sustained growth driven primarily by new paid subscriptions.

Analyst’s Perspective:

While investors may fret over the sub-par reported revenue growth and the 2024 revenue guidance, Piper Sandler remains “encouraged by recent and ongoing generative AI innovations and new subscriber growth that could drive meaningful upside in the coming year,” Bracelin said.

Price Action: Adobe fell 1.48% to $624.26 on Wednesday and lost an incremental 4.94% in after-hours trading, according to Benzinga Pro data.

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