Will Adobe Continue to Disappoint Expectations?
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What’s interesting about Adobe is that >90% of the world’s creative professionals use its software
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A leader in graphic design software
A series of downward revision led to a share price collapse
- In December 2021, Adobe revised down its sales forecast for 22E
- The management admitted that it expects a slowing spending environment for 2022
- The forecast was 1.5% less than analyst expectations
- Although the downward revision appears small, the share price plummeted by more than 10% the day following the announcement
A series of downward revision led to a share price collapse
- In March 2022, Adobe released its forecast for 2Q22
- Again, Adobe expected weaker revenue, falling short of analysts’ forecast by 1.3%
- Adobe mentioned the growing competition and the halt in sales to Russia and Belarus as the main reasons for slightly weaker performance
A series of downward revision led to a share price collapse
- The latest earnings announcement was not great news for the investors as well
- While Adobe delivered a strong 2Q22, the company revised down its full-year forecast by another 1%
- Overall, Adobe’s share price has collapsed close to 50% since its highest point in November 2021
Tech stocks had a bad start to 2022
- It’s not just Adobe that is struggling in 2022
- Most tech stocks saw a similar or even worse decline YTD
- Techs stocks underperformed the already weak S&P500
Adobe is a cash machine
- Adobe’s business is not capital intensive
- Its operations is not dependent on huge amounts of fixed assets or intangibles
- Given the low CAPEX requirements, Adobe can undertake a massive share repurchase program
- The company uses buybacks as an alternative to paying out dividends
How does consensus access Adobe?
- Most analysts are bullish on Adobe, issuing a BUY or STRONG BUY recommendation
- Though, over recent months, analysts consistently revised down their price targets
- Still, the current price target implies an upside of 35%
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