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Stockchase Insights Adobe Systems ADBE-Q HOLD Sep 13, 2024

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

The quarter was good but the outlook was muted. EPS was $4.65, beating estimates of $4.53. Revenue of $5.4B beat estimates by just under 1%. Adobe's guidance for its Digital Media unit's net new annual recurring revenue (ARR) of $550 million was around $11 million below consensus, which is likely due to a strong beat in 3Q, which outperformed Street expectations by $44 million. The 3Q metric was driven by the close of certain transactions that would have otherwise secured in 4Q. There was also a sense a bit of caution in the outlook, given heightened geopolitical uncertainty and lack of clarity on interest rates. The Digital Experience segment is another area where there could be continued pressure until 1H25, as more clarity emerges on enterprise IT budgets. Adjusted operating margin was up only 20 bps to 46.5% -- in line with expectations -- as Adobe ramps up investment in GenStudio and Adobe Express. Not great, but still a great company. HOLD.
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TOP PICK

It lowered its revenue guidance for the year by 1 1/2% but the stock fell by over 20% which was an over-reaction. We should see more progress with opportunities in the enterprise market and Adobe rolling out an express product. The CEO bought $1 million in stock recently.
Buy 33 Hold 12 Sell 2

(Analysts’ price target is $576.85)

DON'T BUY

Is -15% over the year. AI is cannibalizing at lot of their products. He moved out of this.

BUY

It reports Wednesday, the most important of the week. He bets it will break the spell of undeserved negativity.

WEAK BUY

It's been a tough stock the past year. People have been worried about the adoption of AI and the impact on Adobe, but Firefly has been encouraging and he expects more people will use this product.

HOLD

He will continue to hold -it is at an attractive valuation and growing its top line by 10% and trades at 20X earnings. It is the industry Goliath in creative space. Analysts wonder about upstarts taking away business and are questioning why they aren't monetizing AI more substantially. However it isn't communicating this and can't separate it out in the features that are included in its products for which it could charge higher prices.

HOLD

An analyst reiterated a buy after the tech summit

The stock has been an absolute disaster due to one reason: Adobe products face serious competition. They beat quarter after quarter (expectations are not lowered ahead of time, either). The competition is not as bad as people expect. Adobe is ridiculously cheap and unfairly sold given its growth rate, EBITDA and free cash flow. Hold and wait it out as they buy back shares.

DON'T BUY

Not the type of company that would suffer from anti-American sentiment. At first, AI enhanced its product abilities; but then this morphed into perhaps products would become obsolete. No reason to get in.

DON'T BUY

Trading ~17x forward PE with 14% growth rate, so not a bad valuation compared to other tech names. Tepid guidance brought stock down. Below 200-week MA, which is moving lower as well, not great signs.

SELL

She just sold it. It's been undervalued and dominates its space. But trends are slowing and she doesn't know how long the company will prove itself in this space in regards to AI.

PAST TOP PICK

(A Top Pick Apr 01/24, Down 17%)

Thought it was well positioned to monetize AI and deliver to end user. Didn't execute to the extent that analysts thought it would. Increased competition in the space. Struggling to maintain market share. Still owns, disappointing.

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