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Adobe Earnings Preview: Will ADBE Get its Mojo Back with the Quarterly Release?

·4 min read

With inflation and the associated Fed tightening taking a toll on Technology stocks, investors will certainly look towards Adobe’s (ADBE) third quarter earnings after the market’s close on Thursday, September 15th to see if the Computer – Software Industry is able to regain its footing.

The software titan is one of the premier tech stocks due to its Digital Media, Digital Experiences, and Publishing segments.

Trading 47% off its highs, it will be important to see if the company’s demand in cloud computing was able to be sustained. This will give more insight into the effect inflation is having on Adobe’s customer base. During Q2 CEO Shantanu Narayen stated Adobe was able to achieve record revenue with strong demand across its Creative Cloud, Document Cloud and Experience Cloud businesses. 

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Zacks Investment Research


Image Source: Zacks Investment Research

Along with third quarter earnings, investors will be eagerly looking for any guidance the company is able to offer on the outlook of this year’s Cyber Monday sales. Last year’s Cyber Monday sales were $10.7 billion (Total Consumer Spending) and it remains the biggest online shopping day of the year. Companies such as Adobe are the beneficiaries of strong Cyber Monday sales, and Adobe’s outlook and guidance is considered for the broader Computer and Technology sector as well.  From the chart above, the green figure is Cyber Monday last November, when the company was near 52-week highs.

From there we can see the steep decline as inflation concerns began to rise and the hawkish Fed posture took hold. Investors will want to see this chart work its course in reverse this year based on the hopes of strong third quarter results and the possibility of a strong Cyber Monday outlook.

Obviously, deflation and better CPI numbers will play a part in these possibilities as well.

Performance

Adobe is down -35% year to date, with much of the descension from its highs coming in the first quarter as inflation concerns began taking its toll on the stock.

Despite the large decline over the last year, Adobe shares are up around 138% in the past five years to crush the benchmark and its industry.

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Zacks Investment Research


Image Source: Zacks Investment Research

Adobe has also posted earnings surprises for 14 consecutive quarters, dating back to March of 2019.

Outlook

The Zacks Consensus estimate for ADBE’s Q3 earnings is $3.33 per share, which would represent a 7% increase from Q3 2021. Sales for Q3 are also expected to be up 12% at $4.43 billion. This is also in line with Adobe’s third quarter FY22 targets. Estimates for the period have largely been stable over the past two months, though they are modestly down from three months back.

Year over year, ADBE is projected to post 8% earnings growth in 2022, with its FY23 earnings set to grow another 16%. Solid top line growth is also expected, with FY22 sales projected to climb 12% and another 13% in FY23 to $19.99 billion.

Adobe shares have a history of big movements in either direction following quarterly reports and the release this Thursday afternoon will likely be no different. Keep in mind that the stock was down big after each of the last four quarterly releases.  

Valuation

Currently trading around $368 a share, ADBE has a forward P/E of 29.3X. This is much lower than its high over the last five years of 66.3X and the median of 45.3X.

Adobe’s P/E is also near the industry average of 27.9X, and Wall Street has historically been willing to pay a premium for the stock because of its growth outlook. ADBE is expected to have 16% EPS growth over the next five years.

Adobe’s Computer-Software Industry is in the bottom 38% out of 252 Zacks Industries, but ADBE’s growth outlook has been stellar. 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

Adobe’s third quarter earnings have been much anticipated amidst inflation concerns amongst the technology sector. Adobe has a strong track record of beating earnings expectations. Wall Street wants to see if this can continue in the midst of inflation.

Adobe currently has a Zacks Rank #4 (Sell). It will be important to see the guidance Adobe offers as Wall Street worries about macroeconomic factors slowing its licensing revenue. Perhaps an earnings beat and strong guidance with the upcoming Cyber Monday in November could create an upward trajectory for the stock.   


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