Opinions
Stockchase Insights
Adobe Systems
ADBE-Q
HOLD
Sep 13, 2024
Stock price when the opinion was issued
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Still growing topline and bottom line at double digits. Spewing lots of free cash, buying back stock, great balance sheet. Worry is about how will AI affect its business? No evidence yet that it's impacting any of the company's results. Market's not respecting the fundamentals at the moment, maybe rightly so.
She got sick of holding this, because they have trouble with Photoshop--now people can use the tools found in PS elsewhere. She sold before the quarter. Also with Meta, clients can create their own ads using Meta's tools. Adobe hasn't moved fast enough to develop such tools.
He bought more. They beat top and bottom lines, and raised guidance. He's a value investor. Sure, the share price has been terrible, but their earnings estimates are starting to rise and they're buying back share to reduce the share count 5% in the past year. They are meeting the competitive threat through their beats and guidance. They outperform consistently. Eventually, the share price will rise.
Still stands out, but the fear is that it won't in the world of AI. And that's why it looks particularly interesting. Good earnings, upped guidance, yet stock fell. Valuation has collapsed to 17x PE. Still likely to grow double-digit EPS this year, and consensus is still 14-15% EPS growth over the next 3 years.
There is more competition, but it's spending 18% of sales on R&D, so something compelling will turn up. No dividend.
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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