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Adobe Earnings: Good Period With Soft 2024 Guidance

Raising our fair value estimate for Adobe stock based on raised growth assumptions.

In this photo illustration the American multinational computer multimedia and creativity software company Adobe logo seen displayed on a smartphone with an economic stock exchange index graph in the background.

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What We Thought of Adobe’s Earnings

Adobe ADBE reported fourth-quarter results that exceeded both the top end of guidance and our expectations, including revenue and non-GAAP earnings per share. On the surface, the outlook for fiscal 2024 is slightly below Street expectations. We attribute this to both conservatism and an imperfect understanding of prior guidance around when the impact of 2023 pricing increases will be felt, which skews more to 2025 than expected.

We modestly lowered our near-term estimates based on this guidance while slightly raising our medium-term growth assumptions, and we advanced our model for the year-end. In turn, we’ve increased our fair value estimate for Adobe stock to $610 per share from $510. Shares are selling off in the aftermarket, which we assume is based on the outlook and is unsurprising, given the stock’s strong run. We view shares as approximately fairly valued.

Revenue performance was solid and better than we expected, which we attribute to typically conservative guidance. Fourth-quarter revenue grew 13% year over year in constant currency (12% as reported) to $5.05 billion, exceeding the top end of guidance for $5.03 billion. Digital media grew 11% year over year as reported and effectively drove all of the upside in the quarter relative to our model, while digital experience grew 10%. Within digital media, we see both Creative Cloud and Acrobat as having strong quarters, with better subscriber growth and good consumption within Firefly for enterprise customers in Creative Cloud and strong mobile and Adobe Sign performance for Acrobat.

Profitability remains strong and is in line with our long-term model. Non-GAAP operating margin was 46.4%, compared with 44.7% a year ago. We have long been impressed with management’s ability to drive margins, even in the face of the high investment levels needed to create and train foundational artificial intelligence models. We think margins can grind higher over time, but will be limited by Adobe’s already-stellar profitability levels.

Adobe Stock Price

Data as of Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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