Stock Story -
What Happened: Shares of creative software maker Adobe (NASDAQ:ADBE) fell 9.3% in the morning session after the company reported fourth quarter results and provided full-year FY24 revenue guidance below estimates. In addition, management provided a weaker outlook for digital media net new ARR and digital experience subscription revenue.
On the other hand, Adobe topped analysts' revenue, adjusted operating income, and EPS expectations during the quarter quarter. These beats were driven by outperformance in its digital media and digital experience segments.
Lastly, Adobe disclosed regulatory scrutiny over its subscription models. The company has been cooperating with the Federal Trade Commission (FTC) since June 2022 in response to an investigation into its disclosure and subscription cancellation practices, as revealed in a regulatory filing. The company added, "The defense or resolution of this matter could involve significant monetary costs or penalties and could have a material impact on our financial results and operations."
Overall, it was a weaker quarter for the company, given the weak guidance and the regulatory issue, which introduced an element of uncertainty.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Adobe? Find out by reading the original article on StockStory.
What is the market telling us: Adobe's shares are very volatile and over the last year have had 5 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the company gained 5.8% on the news that Wells Fargo (NYSE:WFC) analyst upgraded the stock's rating from Equal-weight (Hold) to Overweight (Buy) and raised the price target from $420 to $525. The analyst believes the ongoing AI debate favors Adobe's growth, with the recently released Gen AI being a positive factor, and they expect established platforms like Adobe to benefit initially from AI. In addition, the analyst views Adobe's profitability metrics and potential AI-enabled product cycle as factors that make the company stand out favorably in the market.
Adobe is up 73.3% since the beginning of the year, and at $583.84 per share it is trading close to its 52-week high of $633.66 from December 2023. Investors who bought $1,000 worth of Adobe's shares 5 years ago would now be looking at an investment worth $2,539.
