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Will Adobe Continue to Disappoint Expectations?

What’s interesting about Adobe is that >90% of the world’s creative professionals use its software.

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A leader in graphic design software

A series of downward revision led to a share price collapse

  • In December 2021, Adobe revised down its sales forecast for 22E
    • The management admitted that it expects a slowing spending environment for 2022
    • The forecast was 1.5% less than analyst expectations
  • Although the downward revision appears small, the share price plummeted by more than 10% the day following the announcement

A series of downward revision led to a share price collapse

  • In March 2022, Adobe released its forecast for 2Q22
    • Again, Adobe expected weaker revenue, falling short of analysts’ forecast by 1.3%
  • Adobe mentioned the growing competition and the halt in sales to Russia and Belarus as the main reasons for slightly weaker performance

A series of downward revision led to a share price collapse

  • The latest earnings announcement was not great news for the investors as well
    • While Adobe delivered a strong 2Q22, the company revised down its full-year forecast by another 1%
  • Overall, Adobe’s share price has collapsed close to 50% since its highest point in November 2021

Tech stocks had a bad start to 2022

  • It’s not just Adobe that is struggling in 2022
    • Most tech stocks saw a similar or even worse decline YTD
    • Techs stocks underperformed the already weak S&P500

Adobe is a cash machine

  • Adobe’s business is not capital intensive
    • Its operations is not dependent on huge amounts of fixed assets or intangibles
  • Given the low CAPEX requirements, Adobe can undertake a massive share repurchase program
    • The company uses buybacks as an alternative to paying out dividends

How does consensus access Adobe?

  • Most analysts are bullish on Adobe, issuing a BUY or STRONG BUY recommendation
  • Though, over recent months, analysts consistently revised down their price targets
    • Still, the current price target implies an upside of 35%

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