Adobe dips on weak Q2 guidance, Wall Street worries about Russia-Ukraine conflict
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Adobe (NASDAQ:ADBE) shares fell on Wednesday after the software maker forecast weaker-than-expected results for the second quarter, prompting several Wall Street analysts to worry about the company's exposure to the Russia-Ukraine conflict.
Morgan Stanley analyst Keith Weiss, who rates Adobe (ADBE) outperform, lowered his price target to $591 from $652, noted that the first-quarter results, which topped estimates, showed a "stabilization" in Digital Media and there is the prospect for a second-quarter price increase, but 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.
"While the [first quarter] print provided some evidence of that stabilization â a modest beat to revenue (+1% vs guidance) and net new Digital Media Annual Recurring Revenue of $418 million coming in +4% ahead of consensus (inline with low/mid-single digit buyside bogey) â impacts of the Russia-Ukraine conflict, a potentially weakening spending environment in Europe and a remarkably unclear conversation on the full year outlook likely leave investors with further questions on the underlying trends in the Digital Media business," Weiss wrote in a note to clients.
Adobe (ADBE) shares fell nearly 3% to $452.55 in premarket trading on Wednesday.
In addition, Morgan Stanley's Weiss noted that 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."
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.
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 with a $560 price target, said the first-quarter results were "in line" with his own estimates, but there are concerns for its Digital Media business.
"While the low Q1 DM [annual recurring revenue] upside (+4.5% ex-Russia & FX) is largely explained by a war-related slowdown in EMEA, 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.