Adobe Earnings: Guidance Is Needlessly Unclear, but We Believe the Big Picture Is Largely Unchanged

We are maintaining our fair value estimate of $610 per share after Adobe reported good first-quarter results, but offered perplexing guidance for the second quarter that is ultimately slightly disappointing. The problem with guidance is threefold in our opinion. First, management refused to simply reiterate its full-year outlook for net new annual recurring revenue, which it repeatedly said it “felt really good” about. Second, it implies the second half of the year will be even more back-end-loaded. Third, multiple moving parts made the outlook overly confusing. We think these factors are driving a steep after-hours selloff. However, given recent pricing actions that should roll out in the rest of the world, pending important product launches, and rapid generative artificial intelligence adoption, we are not making material changes to our model and think shares are back in the “attractive” category.