Adobe rises as Wall Street praises results, guidance and positives from next-gen AI
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Adobe (NASDAQ:ADBE) shares rose more than 4% in pre-market trading on Friday after the enterprise software maker boosted its earnings and revenue outlook for the remainder of the fiscal year, leading to praise from Wall Street.
Barclays analyst Saket Kalia, who has an equal-weight rating on Adobe (ADBE), said the beat and raise stemmed from a pricing benefit, which could wind up being more significant in the second-half of the year. Kalia also touched on the fact that Adobe has ways to monetize its Firefly AI tools and given the prospects of generative AI, the lack of any update on the Figma acquisition may be seen as a positive, given the current regulatory environment.
"With 3Q guide of $410M and implied 4Q guide of ~$460M, we would argue the muted seasonality in 4Q appears conservative even without assuming some contribution from FireFly which will have stand-alone pricing some time in 4Q by our estimates - while we are not sure if the magnitude of beats will continue at 2Q levels, we think guide is set in a way that beats can continue," Kalia wrote in an investor note.
Kalia, who raised his per-share price target to $540 from $485 following the results, added that Adobe (ADBE) has three ways to monetize its Firefly AI tool, which is used to edit photos: the use of Creative co-pilot, which could boost average revenue per user; additional engagement, which should driver higher retention; and lastly, Adobe (ADBE) can add paid users with a freemium model.
"We are starting to sense a change in that sentiment as FireFly starts to feel like a more real growth opportunity, with some investors wondering if no potential deal with Figma is really as negative of an event as maybe was feared a few months ago," Kalia posited.
UBS analyst Karl Keirstead, who also boosted his per-share price target to $525 from $440 following the results, noted that while the price increases from a year-ago helped, the real surprise was the Creative segment, which saw 14% constant currency revenue growth and annual recurring revenue growth of around $354M.
"This should help calm investor fears about maturation and the Canva threat," Keirstead wrote in an investor note.
Keirstead also expressed optimism that Adobe (ADBE) will benefit from generative AI, though the company appears more focused on adoption than revenue, at least in the near term.
Morgan Stanley analyst Keith Weiss called Adobe's (ADBE) fiscal second-quarter results "impressive," while adding that the guidance raise "shows solid execution in a tough macro." 
"The ability to reaccelerate [revenue] growth remains a debate keeping us [equal-weight] given uncertainty on closing Figma, although AI opportunities are moving into focus," Weiss wrote in an investor note.
For the fiscal year 2023, Adobe (ADBE) now sees adjusted earnings per share between $15.65 and $15.75 per share, up from a prior range of $15.30 to $15.60 per share.
The company also raised its full-year revenue outlook, as it now expects full-year sales to fall within a range of $19.25B to $19.35B, up from a prior range between $19.1B and $19.3B.
More on Adobe's earnings

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Adobe Inc. Q2 2023 Earnings Call Transcript
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