Adobe Inc. (NASDAQ: $ADBE) is a major American software developer behind popular programs like InDesign, Acrobat, Illustrator, Audition, Flash, and Photoshop. Based in San Jose, CA., it has been pivotal in developing the desktop publishing industry via the PostScript printer language.
On Thursday, March 14, 2024, Adobe released its financial results for Q1 2024 after markets closed to a negative market reaction.
Adobe Releases Record Q1 Fiscal 2024 Results
The software giant reported a record revenue of $5.18 billion, a 12% increase Y/Y on an FX-neutral basis, beating estimates by 0.94%. Adobe reported Q1 earnings of $4.48, adjusted for one-time items, beating estimates of $3.80, a 2.28% surprise.
The record Q1 revenue signals strong momentum across its cloud products, which are Document Cloud, Creative Cloud, and Experience Cloud, according to Adobe CEO Shantanu Narayen. He noted that the company had embraced generative AI to “deliver groundbreaking innovation across our product portfolio.”
The company reported an operating margin of 17.5% on a GAAP basis and 47.6% on a non-GAAP basis for Q124.
Segment Performance
Most of Adobe’s revenue in Q1 came from the Digital Media segment, which brought in $3.82 billion, a 13% Y/Y rise on an FX-neutral basis. Under digital media, Creative Cloud revenue came in at $3.07 billion, a 12% increase on an FX-neutral basis, while Document Cloud grew 18% Y/Y to $750 million.
The Digital Experience segment brought in $1.29 billion, a 20% increase on an FX-neutral basis, with subscription revenue of $1.16 billion, a 12% Y/Y increase on an FX-neutral basis.
Adobe Announces New Stock Buyback Program
Adobe revealed that its board had approved a new $25 billion stock buyback program. The new program is viable up to March 14, 2028.
Balance Sheet Health
As of the end of the first quarter of fiscal 2024, Adobe had $1.17 billion in cash flow from operations compared to $1.69 billion in Q123 and $6.25 billion in total cash compared to $4.07 billion in Q123.
Adobe Issues Weak Second Quarter Guidance
For the second quarter of fiscal 2024, Adobe expects revenue of $5.25-$5.30 billion, below the analysts’ target of $5.30 billion at the midpoint. It forecasts a non-GAAP EPS of $4.35-$4.40 for the second quarter, which is in line with the consensus estimate of $4.35.
The company did not provide full-year guidance, similar to the first quarter fiscal 2023 financial report.
Adobe (ADBE) Stock performance
Following the release of its first quarter fiscal 2024 results, ADBE stock sank 11.74% in the pre-market trading session to $503.50 per share. As of the close of trading on Thursday, March 14, 2024, the stock was down 0.54% to close at $570.45 per share.
If the pre-market losses hold during the regular trading session, Adobe stock will be down 13.20% year-to-date, compared to the 8.60% gain of the S&P 500 in the same period. Over the past 52 weeks, the stock’s value has increased 59.28%, compared to the 31.50% increase of the S&P 500.
The company has a market cap of $258.62 billion, and it is quite expensive based on its forward P/E ratio of 31.95. However, it is in line with its industry peers, with Microsoft having a forward P/E ratio of 31.85 and 31.25 for Salesforce.
Adobe Stock Forecast
The current consensus rating for ADBE is buy, based on the ratings of 31 analysts. Analysts have given it an average price target of $652.28, a 14.34% upside based on the last closing price. The most bearish forecast a price of $499.0, with the most bullish forecasting $754.87.
Should You Add ADBE To Your Portfolio?
Like most other major software developers, Adobe is being closely watched by the market as it seeks to understand how well it is capitalizing on AI. The company is also facing stiff competition from startups like Midjounrey and Stability AI, which aim to upend its decades-long grip on the graphics industry.
Its recent results did not do much to assuage investors about its ability to remain competitive in the budding AI industry. The company forecasted 440 million in net new annual recurring revenue (ARR) for the second quarter for its digital media segment, below the $470 million reported last year.
Given the segment’s importance to Adobe’s AI efforts and the overall downbeat revenue forecast for the second quarter, it is not surprising that the market reacted negatively.
Despite the downbeat forecast, Adobe pulled off a record revenue in the quarter. Given its healthy balance sheet and ongoing efforts to ramp up its AI capabilities, the stock’s long-term performance looks promising. However, in the short term, it might suffer in performance. Consequently, adding ADBE to your portfolio as part of a long-term strategy would be great.
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