Tech companies have been doing reasonably well this year despite operating in a higher inflationary environment. However, many software-as-a-service (SaaS) type businesses have seen their revenue figures stagnant, if not tumble, in recent months. One of those happens to be Adobe (NASDAQ: ADBE). Analysts were already expecting mixed estimates for the next year, but the actual predictions released to the public were even lower than that.
On Thursday morning, Adobe management released its full-year 2022 and Q1 2022 forecasts, with traders reacting quite poorly to the news. Sales are expected to come in at $4.23 billion for the first quarter, which ends in February. In contrast, analysts were expected something closer to $4.4 billion in first-quarter revenue. It was a similar story with earnings-per-share (EPS) and other metrics, which fell largely short of expectations.
Adobe added that these new figures take into account the strengthening of the U.S. dollar compared to foreign currencies, which hurts its international revenue sources. For years, Adobe has dominated the design software ecosystem. However, the company has found recent competition in recent years, all of which have been eating away at Adobe’s top-line growth.
“Most investors are still a little more cautious there, it’s viewed as a distant runner-up to Salesforce in that space,” said Guggenheim director Ken Wong before the results were released. “If there is a way to improve the narrative, growth trajectory of the business, it’s probably going to come from digital experience.”
Besides the earnings news, Adobe also confirmed that it would be shuffling around some members of its executive team, but nothing too major. Additionally, Adobe also repurchased over 1.6 million shares during the previous quarter, a policy that’s aimed at propping up shareholder value. While share prices were up almost 25% since this year began, they’ve recently started to tumble over the past few weeks.
On that note, shares of Adobe were down over 10.5% following the earnings news. Unlike other tech stocks, which are seen as more exciting, Adobe is considered a more conservative tech pick in this sector right now. Many have compared the company to Microsoft (NYSE: MSFT), which has prospered decades after launching its Windows operating system. Similarly, Adobe has traditionally lived off its Adobe suite subscription revenue.
Even before the news, analysts have sounded the alarm bells. JPMorgan previously downgraded most cloud-related stocks, including Adobe, due to the company being overpriced. The investment bank’s warning, which came before Adobe lowered its guidance, cited likely climbing interest rates in 2022 as one reason why the tech companies like Adobe will struggle. Now that the Fed all but confirmed multiple interest rate hikes are coming next year, it’s no surprise that some investors are starting to get a bit bearish on these companies.
Adobe Company Profile
Adobe provides content creation, document management, and digital marketing and advertising software and services to creative professionals and marketers for creating, managing, delivering, measuring, optimizing and engaging with compelling content multiple operating systems, devices and media. The company operates with three segments: digital media content creation, digital experience for marketing solutions, and publishing for legacy products (less than 5% of revenue). – Warrior Trading News