Adobe experienced its steepest stock drop in over two years, falling 14% on Thursday following disappointing revenue guidance for the fiscal first quarter of 2024. The software giant forecast sales between $5.63 billion and $5.68 billion, falling short of the $5.73 billion average analyst estimate compiled by LSEG.
The unexpected forecast has rattled investors and analysts alike. TD Cowen downgraded Adobe’s stock from “buy” to “hold,” while Wells Fargo maintained its “buy” rating but acknowledged a “frustrating” outlook for 2024. Adobe’s stock is now down 20% for the year, underperforming the Nasdaq, which has surged 33% in 2024 and recently crossed the 20,000 mark.
Mixed Q4 Performance
Despite the disappointing guidance, Adobe’s fourth-quarter results exceeded expectations:
- Adjusted earnings per share: $4.81 (vs. $4.66 expected)
- Revenue: $5.61 billion, an 11% increase year-over-year (vs. $5.54 billion expected)
The company’s growth strategy hinges on monetizing generative artificial intelligence (AI). Adobe has integrated AI tools such as Firefly for image generation into its Creative Cloud and other standalone offerings, which have contributed to its revenue growth thus far.
Analyst Reactions
Deutsche Bank analysts maintained their “buy” rating for Adobe but reduced their target price from $650 to $600, citing cautious optimism. “These results and guidance require a bit of faith in the full year next year,” they said, while also noting that Adobe is among the few application software companies effectively capitalizing on generative AI.
As Adobe seeks to navigate challenges in revenue growth, investors are closely monitoring its ability to sustain momentum in the competitive generative AI space while meeting market expectations.