Why did Adobe stock go down today? Weak guidance hits software maker
Jaap2/iStock Unreleased via Getty Images
Adobe (NASDAQ:ADBE) shares plunged sharply on Wednesday after the software-maker forecast second-quarter results that would come in well below Wall Street expectations. 
On Tuesday, the Shantanu Narayen-led Adobe (ADBE) said it expects to earn $3.30 per share on $4.34 billion in revenue. Analysts were expecting the company to earn $3.35 per share and $4.4 billion in sales.
For the first quarter, ended March 4, Adobe (ADBE) said it earned $3.37 per share on $4.26 billion in sales. A consensus of Wall Street estimates expected Adobe (ADBE) to earn $3.34 per share on $4.24 billion in revenues.
Adobe (ADBE) shares fell nearly 9.5% to $422.11 shortly before the close of trading.
Morgan Stanley analyst Keith Weiss, who rates Adobe (ADBE) outperform, lowered his price target to $591 from $652, noted the first-quarter results showed a "stabilization" in Digital Media and there is the prospect for a second-quarter price increase. However, there needs to be a more constructive tone regarding operating margins and getting past concerns about a weak spending environment in Europe for the stock to move higher.
In addition, Weiss said investors are looking for Adobe (ADBE) to get its "groove back" in three areas, including a "beat and raise" for Digital Media in net new Annual Recurring Revenue, considering the lack of disclosure from Adobe; additional acceleration in Digital Experience, with an increased focus on first party data; and improving operating margins.
Weiss also noted that it's likely Adobe (ADBE) can have a path of "durable mid-to-high teens top line growth with stable operating margin," but investors will want to see more evidence of steady performance or additional disclosure before Adobe regains "its prior franchise premium."
Bank of America analyst Brad Sills reiterated his buy rating on Adobe (ADBE), but lowered the price target to $560 from $640, citing a lower earnings multiple. He said there are concerns for its Digital Media business.
"While the low [first-quarter] DM [annual recurring revenue] upside (+4.5% ex-Russia & FX) is largely explained by a war-related slowdown in [Europe, Middle East and Asia], results are unlikely to materially change the narrative on heightened competition in the communicator and consumer segments, though commentary for balanced single app and suite adds doesn't suggest any meaningful competitive pressure," Sills added.
Adobe (ADBE) was recently mentioned by Wedbush Securities as one of the stocks that could be bought after the Federal Reserve gave a "bright green light" to investors following its interest rate hike last week.