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The Ratings Game: Adobe shares slip premarket on weaker-than-expected guidance


Adobe stock was down more than 3% in premarket trading Friday after the company posted weaker-than-expected guidance for the August quarter and the company’s full fiscal year.

Shares of the software maker fell 3.8% to $351.21 before market open.

In its quarterly results, released after market close on Thursday, Adobe

reported record second-quarter revenue of $4.39 billion, a year-over-year increase of 14%, or 15% in constant currency. In a statement, Adobe CEO Shantanu Narayen cited strong demand across the company’s Creative Cloud, Document Cloud and Experience Cloud segments. The company’s cash flow from operations exceeded more than $2 billion during the quarter.

However, Adobe’s third-quarter and full-year revenue and earnings guidance disappointed. For the third quarter, Adobe expects revenue of $4.43 billion and non-GAAP profit of $3.33 a share. Street consensus was for third-quarter revenue of $4.51 billion and non-GAAP profit of $3.40 a share.

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For the full fiscal year, Adobe lowered its prior revenue forecast of $17.90 billion to $17.65 billion and lowered its earnings forecast from non-GAAP profit of $13.70 to $13.50.

Adobe cited a number of factors for its guidance, including summer seasonality, the impact of the war in Ukraine, foreign-exchange headwinds and an increase in effective tax rates.

Stifel Nicolaus lowered its Adobe price target from $600 to $500 on Friday, citing multiple compression in the software space.

“Over the next quarter, we anticipate debate around the level of conservatism baked into the 3Q guide and the impact the uncertain economic circumstances will have on the company’s business,” wrote Stifel’s J. Parker Lane. Stifel maintained its buy rating on Adobe.

Mizuho Securities also lowered its Adobe price target from $530 to $480. Mizuho’s Gregg Moskowitz highlighted Adobe’s “disappointing” third-quarter guidance.

“Fiscal third quarter guidance was much worse than anticipated, and reflects a meaningful quarter-over-over net new Digital Media annual recurring revenue decline on expectations of more pronounced summer seasonality coupled with incremental currency headwinds,” he wrote. “It’s interesting that ADBE does expect a materially better fourth quarter, but in this environment we would expect much skepticism until it proves otherwise.”

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However, Mizuho maintained its buy rating on Adobe. “We continue to believe ADBE remains very well-positioned to benefit from digital transformation with its comprehensive end-to-end offering that differentiates it from competitors,” Moskowitz wrote. 

Of 25 analysts surveyed by FactSet, 20 have a buy rating on Adobe and 5 have a hold rating.

Adobe shares have fallen 36% in the year to date, while the S&P 500

has fallen 23%.

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