Adobe (NASDAQ: $ADBE) released its fiscal third quarter results on Thursday after markets closed. The digital media and marketing software giant beat Wall Street estimates, but guidance was weak. Here is a look at Adobe’s third-quarter results.
Adobe’s Q3 Results
The software giant reported an adjusted EPS of $4.65 on sales of $5.41 billion in the third quarter, beating estimates of an EPS of $4.53 and revenue of $4.37 billion. Its earnings per share increased 14% year over year, while revenue increased 11% from last year.
The company reported remaining performance obligations of $18.14 billion and cash flow from operations of $2.202 billion.
Segment Performance
Digital Media
Adobe reported $4 billion in revenue from the Digital Media segment, a 12% year-over-year rise. Document Cloud brought it $807 million in revenue, an 18% YoY increase, while Creative brought in $3.19 billion, an 11% YoY increase.
The company reported $504 million in net new Digital Media Annualized Recurring Revenue, ending the quarter with $126.76 billion in Digital Media ARR. Its Document Cloud ARR increased to $3.31 billion, while the Creative ARR increased to $13.45 billion.
Digital Experience
Adobe’s Digital Experience segment brought in $1.35 billion in revenue, a 10% YoY increase. Of this, $1.23 billion came from digital experience subscriptions, a 12% YoY increase.
Adobe’s Forecast Misses Estimates
For the fourth quarter, Adobe expects revenue of $5.50 billion to $5.55 billion, below Wall Street’s estimates of $5.6 billion. It expects an adjusted EPS of $4.63 to $4.68, which is below analysts’ forecast of $4.66 at the midpoint.
Adobe’s earnings growth has decelerated in the past four quarters, and this trend is forecast to continue in the fourth quarter.
Adobe’s Highlights Its Leadership In AI
In the earnings release, Adobe CEO Shantanu Narayen stated, “Adobe’s record Q3 performance is a testament to our relentless innovation and commitment to delivering value to our customers.” He added, “With groundbreaking advancements in AI across Creative Cloud, Document Cloud, and Experience Cloud, we are empowering millions of users worldwide.”
CFO Dan Durn stated, “Given the massive markets we are catalyzing, I’m confident in our ability to drive growth and industry leadership.”
Adobe has enjoyed huge success with AI tools, integrating them into its creative products. Thus far, it is one of the few firms that has successfully monetized generative AI.
On Wednesday, September 11, Adobe previewed its upcoming AI video tool powered by the Adobe Firefly Video Model. Users of the product will soon be able to use text to generate videos and images later in 2024.
Adobe Stock Flops On Guidance Miss
Following the fourth quarter guidance miss, Adobe stock fell sharply, losing over 8% of its value in premarket trading. ADBE has underperformed the market, gaining 1.12% year to date, while in the past 12 months, it has gained 5.96%. It closed trading on Thursday 1.06% at $586.55 per share, above both the 50 and 200 DMAs of $554.50 and $544.33, respectively.
Analysts are optimistic about the stock’s future performance, giving it a moderate buy rating. They forecast a wide range of price points for the stock in the next 12 months, with a high of $700 and a low of $450. They forecast an average price target of $625.52, which is a 6.64% upside based on Thursday’s closing price.
Should You Add Adobe To Your Portfolio?
When the AI wave started earlier this year, there were fears that Adobe could lose relevance as generative AI tools became more around. However, Adobe has turned things around, incorporating AI into products, giving it an edge over purely AI-based tools. Thanks to its quick action, Adobe is one of the few firms that has managed to generate a profit from AI-based products.
Management’s quick reaction time has helped to dampen fears over Adobe’s future. Despite this, the company has underperformed in the market. However, with a slew of AI tools in the pipeline that will be part of an already profitable AI product lineup, Adobe’s future looks promising. Consequently, Adobe could potentially be a great AI stock to invest in for long-term returns.
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