Adobe earnings beat, but guidance disappoints

Wed, Dec 13, 2023, 2:14 PM

Adobe (ADBE) reported fourth-quarter results beat Wall Street estimates on both the top and bottom lines, but the stock is falling in after-hours trading due to disappointing full-year guidance. For the most recent quarter, Adobe reported adjusted earnings of $4.27 per share compared to estimates of $4.14 per share and revenue of $5.05 billion, just slightly better than the $5.02 billion analysts were expecting.

Jefferies Senior Analyst Brent Thill is shrugging off the guidance, even though it fell short of estimates. He thinks Adobe executives are being conservative with their outlook. Thill argues that when it comes to AI, Adobe is "ahead of everyone else," saying the company's AI software Firefly is "crushing it." "It is truly a product that is changing creatives' lives," Thill says.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

JULIE HYMAN: Let's talk about Adobe earnings right now. The shares are under pressure after reported earnings moments ago. The shares are down almost 6%. The results for last quarter did beat on the top and bottom line, but the company's guidance is falling short of what analysts had predicted here.

The company saying adjusted earnings per share for 2024 will be $17.60 to $18. The estimate was $18, so there's room for them to miss estimates here. It looks like revenue overall, the forecast is below what analysts had predicted. And in particular, whether you're looking at their digital media revenue, which is the bigger part of their business or digital experience revenue, both of those leave room to miss estimates.

One more thing I just want to mention here that I'm still, sort of, trying to figure out, the company said it got a communication from the Federal Trade Commission in November about its subscriptions. It's unclear to me exactly what that entails here, but the company says at some point that that could have-- there could be a monetary penalty related to that. So let's piece through all of this and bring in Brent Thill, senior analyst at Jefferies. Brent, it's good to see you. Why don't you first just give us your first blush reaction here to these Adobe numbers, and in particular, that forecast?

BRENT THILL: Yeah. Thanks for having me. The quarter was fine. The guide was below an ARR, total revenue and earnings. So all three metrics were below the street and this is pretty classic.

I mean, Adobe's guiding out a whole year. I mean, think about Google, they don't even give you one quarter of guidance. So the CFO has been pretty conservative. They've been in a beat and raise cadence.

Any time you give a full year guide, you're going to be probably pretty conservative. And the macro environment is still uncertain. So they got it to around 10% growth at the midpoint, Street wanted 12.

And I think there's been, obviously, a huge run up in the stock. So 350, 400, everyone thought the creative business was dead, and that they didn't have any AI, and that the acquisition that they're pending on now is going to be a disaster. And I think that was all wrong.

And so there was not a lot of debate going into this print. Everyone was on the offense and believed that they could walk on water and clearly, the guides below. And that to us is a great place to start.

It's not a signal that the business is under duress. It's just you're guiding out for a full year. And we think ultimately Dan Durn is a great CFO and he's done a nice job providing guidance that he can hit.

JOSH LIPTON: And Brent, listen, it's Josh. It's great to see you as always. And you hinted at this-- I mean, the stock was a rocket ship headed this year. I mean, it's up 85% into the print.

But you have a buy, Brent. You got 660 target, I think. What are the catalysts ahead for Adobe that you would see that-- are there dates, products, coming solutions that investors should know about?

BRENT THILL: Yeah, I mean, we've said that in the AI, they're ahead of everyone else. Adobe and Microsoft at the front of the line with Firefly. They're crushing it. It is truly a product that is changing creatives' lives. And in the last 20 years of Adobe's history, creatives have not seen this level of innovation.

So Firefly came out this fall. Their AI products are invading every one of their creative products from Illustrator to Photoshop across the board. So we think that's going to fuel a broader adoption cycle and pricing for Adobe. So that is started. It will only continue into next year.

And we continue to believe it'll filter into video and audio. We think they've done a really nice job hiring some great professionals. One of the guys out of Stanford that taught AI on the audio, they just hired. And so this is going to invade every one of their product lines and help pricing, help user productivity.

And remember, again, Adobe really doesn't have a direct high-end competitor. They have Canva at the low end, but at the high end they don't really have anyone. So I think, ultimately, this is really just a result of conservative guide. And that's what you would do if you were the CFO of Adobe, you're not going to give an aggressive guide. And that's, kind of, really what everyone seems to be concerned about.

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Adobe earnings beat, but guidance disappoints

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