On Thursday, KeyBanc reaffirmed its Underweight rating on Adobe (NASDAQ:ADBE) with a price target of $450.00, notably below the current market cap of $241.82B. According to InvestingPro data, analyst consensus shows a more optimistic outlook, with price targets ranging from $440 to $704.55.
The firm highlighted concerns about Adobe's guidance for 2025, noting that the margin outlook, while only slightly disappointing compared to consensus estimates, was acceptable. However, the continued decline in Digital Media growth and another quarter of underwhelming Creative Cloud Annual Recurring Revenue (ARR) were seen as negative factors that the stock could not overlook.
The results for the quarter reflected ongoing issues that have troubled investors throughout 2024. Adobe's net-new Creative Cloud ARR failed to meet both consensus and KeyBanc's more conservative estimates. Despite this, Document Cloud's performance exceeded expectations and contributed to a slight overall ARR beat.
InvestingPro analysis reveals Adobe maintains impressive gross profit margins of 88.66% and achieved 10.91% revenue growth in the last twelve months. InvestingPro subscribers have access to 12 more key insights about Adobe's financial health, which is currently rated as GREAT. The firm pointed out that in the face of AI monetization questions and increasing competition within the Creative Cloud sector, the product mix becomes increasingly significant.
KeyBanc expressed a lack of surprise or heightened criticism regarding Adobe's performance, suggesting that the company's results were simply in line with the firm's ongoing Underweight thesis. There was an absence of strong language in the firm's assessment, indicating a continuation of existing trends rather than a dramatic downturn.
Looking ahead, Adobe's forecast for 2025 was also a source of disappointment. The anticipated Digital Media ARR growth of 11.0% and the midpoint of Digital Media revenue growth at 9.2% both fell short of market expectations. While Adobe trades at premium multiples across various metrics, InvestingPro's Fair Value analysis suggests the stock might be slightly undervalued, offering potential opportunity despite near-term challenges. Discover comprehensive valuation insights and access the detailed Pro Research Report, available for Adobe and 1,400+ other top US stocks.
Additionally, both margin guidance and non-GAAP EPS were projected below what analysts had anticipated. The firm's analysis suggests that Adobe is facing challenges that may affect its financial performance and stock valuation moving forward.
In other recent news, Adobe's recent earnings release has brought about a flurry of analyst adjustments. Goldman Sachs (NYSE:GS) has maintained its buy rating for Adobe, setting a price target of $640. The firm's confidence in Adobe is rooted in the company's consistent history of meeting or exceeding its initial Digital Media Net New Annual Recurring Revenue (DMNNARR) and earnings per share (EPS) guidance.
Adobe's recent revenue growth of 10.91% and projected earnings of $18.68 per share for fiscal year 2024, along with the anticipated impact of generative AI (Gen-AI) technologies, are key factors in this assessment.
BofA Securities, while reducing its price target from $640 to $605, maintains a buy rating on Adobe, citing potential growth from improved upsell and cross-sell opportunities. Deutsche Bank (ETR:DBKGn) also revised its price target for Adobe to $600 from $650, maintaining a buy rating and highlighting expected growth in Adobe's Digital Media Annualized Recurring Revenue (DM ARR) for fiscal year 2025.
Jefferies, despite reducing Adobe's price target from $700 to $650, maintained a buy rating, expressing confidence in Adobe's long-term potential as a leader in AI. UBS revised Adobe's price target from $550 to $525, maintaining a neutral rating, due to the company's current revenue growth and the potential gains from artificial intelligence (AI).
BMO Capital Markets reduced Adobe's price target from $600 to $570, maintaining an outperform rating, based on the company's valuation.
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