Adobe Shares Plunge 13% on Disappointing Revenue Guidance

Adobe CEO Shantanu Narayen was recently interviewed by CNBC on the floor of the New York Stock Exchange, where he discussed the company's performance and future outlook.

Adobe's shares dropped 13% on Thursday, marking their largest decline since March. The significant drop followed the company's announcement of disappointing revenue guidance for the upcoming fiscal year.

In its fourth-quarter earnings report released late Wednesday, Adobe projected that sales for the fiscal first quarter will range between $5.63 billion and $5.68 billion. This figure falls short of analysts' expectations, who had forecasted revenue of $5.73 billion, according to LSEG.

Following the news, analysts at TD Cowen downgraded Adobe's stock to a hold rating from a buy rating. Meanwhile, Wells Fargo retained its buy rating but described the year as a "frustrating '24" for the software giant. Year-to-date, Adobe's stock has now declined by 20%, significantly underperforming the Nasdaq, which has risen by 33% and surpassed the 20,000 mark for the first time on Wednesday.

Despite the lackluster revenue forecast, Adobe's fourth-quarter results surpassed market expectations. The company's adjusted earnings per share stood at $4.81, exceeding the average analyst estimate of $4.66. Additionally, revenue for the fourth quarter grew by 11% to reach $5.61 billion, outperforming the average estimate of $5.54 billion.

A key component of Adobe's growth strategy is to monetize generative artificial intelligence. This includes launching standalone offerings such as Firefly for image generation, as well as enhancing features across the Creative Cloud platform.

Deutsche Bank analysts maintained their buy rating for Adobe but adjusted their target price from $650 to $600. They suggested that the results and guidance woud require investors to have faith in the company's prospects for the coming year. Nevertheless, they acknowledged, "We see tangible evidence that Adobe is one of the few application software companies successfully monetizing generative AI today."

Adobe, Shares, Revenue