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Adobe Cuts Annual Sales Forecast on Summer Demand, Currency

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(Bloomberg) -- Adobe Inc. reduced its annual revenue forecast, saying its business would be affected by currency fluctuations, seasonal shifts in demand and the decision to end sales in Russia and Belarus after the invasion of Ukraine. The shares declined about 3.5% in extended trading.

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The forecast overshadowed a strong quarter for the maker of software for design professionals. Revenue increased 14% to $4.39 billion. Profit, excluding some items, was $3.35 cents a share in the period ended June 3, the San Jose, California-based company said Thursday in a statement. Both topped analysts’ estimates.

Adobe said fiscal-year sales will be about $17.7 billion, a decrease from the company’s previous forecast of $17.9 billion. Profit, excluding some items, will be $13.50 a share from the earlier projection of $13.70.

Compared with some peers, Adobe is faring relatively well in a difficult macro environment, said Bloomberg Intelligence analyst Anurag Rana.

“The stock reaction to such a minor update to guidance is confusing, especially as bulk of the revenue guidance is due to FX,” he said.

Tech peers that have significant overseas exposure, including Salesforce Inc. and Microsoft Corp., have seen growth curtailed by a surging US dollar. Adobe, with more than 40% of its sales outside the Americas, said its revenue will be reduced about $175 million in the second half of the fiscal year by currency changes.

In addition to the currency headwinds, the reduced forecast is based on an estimated $75 million hit from pulling out of Russia and Belarus and “more pronounced summer seasonality” on demand from enterprise clients, Chief Financial Officer Dan Durn said during a conference call after the results were released.

Chief Executive Officer Shantanu Narayen said the company is being “a little cautious” as it relates to the next few months given the economic uncertainty. There’s a possibility that cost-cutting customers will delay purchases over the summer, which is traditionally a slower period, though the company is confident demand will return by the end of the year, he said.

“The question for us is timing,” Narayen said on the call.

Investors are increasingly skeptical about the dominance of Adobe’s line of software for design professions, which makes up about 60% of its revenue. The challenge comes from newer companies with more flexible offerings such as closely held Canva Inc., which BMO Capital Market’s Keith Bachman called “the primary threat.” Adobe has responded with an “express” suite of content creation tools aimed at nonprofessional users such as social media influencers and small businesses. It has also expanded its business over the past decade to include digital marketing, analytics and e-commerce products, which may be at risk in a struggling economy.

Adobe’s core products targeted at professionals haven’t been hurt by competition, said David Wadhwani, president of Adobe’s digital media business, which includes Photoshop and other signature creative software. The real battleground is the rapidly expanding market for more-casual users, he said in an interview.

Revenue in digital media increased 15% to $3.2 billion in fiscal second quarter, Adobe said in the statement. Analysts, on average, estimated $3.16 billion. The company raised prices for its creative services abut a month before the end of the quarter, which generated an extra $10 million, Durn said.

Sales in digital experience, the unit including analytics and marketing, rose 17% to $1.1 billion, compared with the average projection of $1.08 billion.

“We are winning in our established businesses and seeing significant momentum in new categories from content authoring for a broad base of creators to PDF functionality on the web to the leading real-time customer data platform for global enterprises,” Narayen said in the statement.

Shares dropped to a low of $340.26 in extended trading, then pared some of the loss after closing at $365.08 in New York. Amid an equity bear market that has particularly dented high-growth tech stocks, Adobe shares are down 36% this year. The company has been a favorite of Wall Street, with double-digit share gains nine of the past 10 years.

(Updates with comments from executive in the 11th paragraph.)

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