Analysts revamp Adobe stock price target after earnings

Here's what could happen next to Adobe shares.

Mar 16, 2024 - 18:30

0 9

Analysts revamp Adobe stock price target after earnings

In 1982, most people's knowledge of artificial intelligence came from science fiction movies.

That was the year that John Warnock and Charles Geschke founded the software company Adobe (ADBE) in Warnock's garage. The company was named after the Adobe Creek that ran behind Warnock's home in Los Altos, Calif.

The creek turned into a roaring river of success as Adobe went on to introduce the world to the PDF, Photoshop and Lightroom — to name a few of its product successes.

And now that AI is becoming a reality, Adobe wants a piece of the action.

Last year, for example, the company released Firefly, an application that can apply AI components to creative work such as graphic design.

"Every student, communicator, creative professional, and marketer is now focused on leveraging generative AI to imagine, ideate, create, and deliver content and applications across a plethora of channels," Shantanu Narayen, the company's chairman and chief executive, told analysts during a March 14 earnings call.

Narayen said Adobe is “uniquely positioned through the combination of Express, Firefly, Creative Cloud, Acrobat, and Experience Cloud to deliver on this immense market opportunity.”

Wall Street, however, did not seem to share his enthusiasm, as Adobe shares were down nearly 14% to $491.07 at last check.

Analysts adjust their stock price targets for Adobe
Shutterstock

AI a threat to 'competitive moat'?

Adobe reported earnings of $4.48 a share on revenue of $5.18 billion. Analysts polled by FactSet were looking for earnings of $4.38 a share on $5.14 billion in sales.

A year ago, the company earned $3.80 a share on sales of $4.67 billion.

In December Adobe suffered a setback when it had to scrub its planned $20 billion merger with the startup design software company Figma due to pushback from regulators in Europe and the U.K. As a result Adobe was responsible for paying Figma a $1 billion deal-breakup fee

Looking ahead, Adobe called for second-quarter earnings of $4.35 to $4.40 a share, on $5.25 billion to $5.3 billion in revenue. Analysts had been looking for $4.39 in earnings per share and $5.29 billion in revenue.

A number of analysts cut their price targets for Adobe after the earnings release.

HSBC analyst Stephen Bersey mentioned the AI issue, as well as disappointing guidance, when he lowered the firm's price target on Adobe to $511 from $557 and kept a hold rating on the shares.

The investment firm thinks artificial intelligence "poses a threat to Adobe's competitive moat." Al has the ability to automatically perform many of the capabilities that users achieve manually while using Adobe, Bersey said.

The AI threat has reportedly been on the mind of some of the company's employees as well. In July, Insider reported that some of the workers at Adobe felt that AI presented an "existential crisis" for many designers.

Analyst: pullback in ADBE shares 'a little extreme'

Evercore ISI lowered its price target on Adobe to $650 from $700 and affirmed an outperform rating on the shares.

Evercore argues that the pullback in shares "seems a little extreme if one is taking a longer-term view."

One of the biggest challenges for the bulls, the firm said, is that the fiscal-year guidance now seems less likely to offer a more material upside scenario around Firefly, and the benefits Adobe is seeing from Gen Al are "essentially getting masked by last year's price increases."

Heading into the company's analyst day on March 26, Evercore said that the company might address the pricing headwinds in a bit more detail to help shift the focus back to some of the positives of the business.

More AI Stocks:

Piper Sandler cut its stock price target to $700 from $705 while maintaining its overweight rating. The firm said the stock’s current tumble may be an overreaction, referring to it as a "self-inflicted flesh wound," according to Investing.com.

The investment firm suggested that the recent announcement of a $25 billion stock buyback program could alleviate investor concerns.

In light of these developments and minor adjustments to growth expectations, Piper Sandler encouraged growth investors to take advantage of the dip in Adobe's stock price before the Adobe Summit user conference in Las Vegas, March 26 to 28.

Morningstar affirms Adobe fair value estimate

Morningstar analyst Dan Romanoff said he was reiterating his fair-value estimate of $610 a share after Adobe's made a good first-quarter report "but offered perplexing guidance for the second quarter that is ultimately slightly disappointing."

Among other things, he said, management refused to simply reiterate its full-year outlook for net new annual recurring revenue, which it repeatedly said it “felt really good” about.

But Romanoff argued that “management has repeatedly proven that they are capable of delivering, whether it be product releases or satisfying guidance.”

"With new products launching, strong recent subscriber additions, strong AI adoption and engagement, and new price hikes, we believe there is enough support for the second-half story," he said.

Original Post