A Rather Emotional Breakdown for Adobe Shareholders
One of my favourite stocks and a leading creative software maker, Adobe Systems (ADBE), has faced an over 10% decline. This happened for the second time in the past couple of months, caused by some softer-than-expected guidance for the current quarter. Yet, the situation still looks very similar to the experience with falling Google price in the last October, when temporary weakness in the only segment of a remarkably strong financial report led to a rapid price fall, but the bearish gap was then purchased and fully recovered over the next few weeks. So, I only bought more Google very soon after appearing that rather absurd local dips on charts, and I am going to add even more Adobe shares to my portfolio after waiting a little time until this initial and purely emotional breakdown passes away.
What actually cited in newswires as a main reason behind the downside move was that Adobe yesterday projected its digital media net new revenue at $440 million for Q2 FY2024, compared to $432 million in Q1 FY2024 and consensus analyst estimates of $460 million for Q2. The numbers were also called as a key metric that is quite possible but disputable against the background of the entire digital media business of the company which is much bigger, giving $3.82 billion at the moment. By the way, the last full number just showed a 12% YoY growth during the recent quarter. A projected slowdown for the "key metric" contribution amounted to less than 5%, and not over 10%, vs previously overestimated numbers.
The same observation could be attributed to the company's own EPS (equity per share) projections, which now lie in a range of $4.35 to $4.40, on revenue of $5.25 billion to $5.30 billion, compared with analyst pool estimates of $4.39 on revenue of $5.31 billion, for the current quarter. The numbers could be considered as huge and not less inspiring. Ultimately, it would be very strange for the crowd to turn a blind eye to freshly achieved all-time records in both last quarter's EPS of $4.48 and last quarter's revenue of $5.18 billion. The same pool of Wall Street analysts, which now tries to stigmatize the previous growth expectations from Adobe, anticipated lower records for EPS of $4.38 on lower revenue of $5.14 billion as well. The previous record in EPS was set at $4.27 three month ago. EPS records became broken by Adobe business for the seven consequent quarters in a row, which barely deserves such a deep correction.
One can indulge more in talking about rising competition in the segment, including a challenge by OpenAI's text-to-video generator Adobe was probably not wasting a lot of its money in vain for AI-related features to increase attractiveness of its products to demanding customers. If so, I bet Adobe price may even continue below its 7-month technical support at $500 per share, or even may decline further to touch the summer 2022 levels between $430 and $450, yet the company's investor day on March 26 would become the event to unveil new products' advantages, and it is going to put everything on its deserved place. The company's fresh announcement of a $25 billion stock buyback program will also help to give more confidence in Adobe to the investment community, when the management itself prefers to invest money in its own business.
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