Proactive Investors - Adobe Inc (NASDAQ:ADBE) shares plummeted more than 14% after the creative software firm revealed a soft sales outlook for the current quarter.
For the fiscal second quarter, Adobe projected revenue in the range of $5.25 billion to $5.3 billion, at the low end of analysts’ consensus estimate of $5.3 billion.
Adjusted earnings per share (EPS) are seen being in the range of $4.35 to $4.40, compared to estimates of $4.36.
Adobe also guided $440 million in net new annual recurring revenue (ARR) for its digital media segment, which includes its creative cloud and document cloud businesses, a decline from $470 million in the year-ago quarter.
However, its fiscal first quarter results, for the three months ended March 1, 2024, topped estimates on the top and bottom lines.
Revenue rose 11% year-over-year to $5.18 billion and adjusted EPS was $4.48, against estimates of $5.14 billion and $4.38, respectively.
Analysts at Jefferies wrote in a note to clients that Adobe’s new digital media ARR guidance only beat guidance by $22 million, compared to $49 million to $54 million in the year-ago quarter, giving bears reason to argue softness in the creative business.
“Management pointed to headwinds from 2022 price increases and responded that net new Creative Cloud ARR normalized for past and current price increases was up 20% year-over-year,” they wrote.
They wrote that Adobe has been slower to monetize AI than investors have wanted, with monetization more likely later in 2024 and into 2025.
“New ARR is expected to accelerate in the second half due to price increases rolling to more geographies, contribution from newer products including some currently in beta, and video-audio AI consuming more GenAI credits,” they wrote.
“With two quarters of ARR metrics missing high expectations and new ARR acceleration back-end loaded, some investors are losing patience.”
The analysts have a ‘Buy’ rating on the stock and a $700 price target.
Shares of Adobe traded 14.1% lower at about $490 in early trade Friday.