On Thursday, Goldman Sachs (NYSE:GS) reiterated its confidence in Adobe (NASDAQ:ADBE), maintaining a Buy rating and a $640.00 price target. The affirmation follows Adobe's fourth-quarter fiscal year 2024 earnings release. With a current market capitalization of $241.8 billion and a P/E ratio of 46.3, Adobe continues to command premium valuations.
Despite Adobe outperforming in the quarter and setting an initial fiscal year 2025 Digital Media Net New Annual Recurring Revenue (DMNNARR) guide at $1.9 billion, in line with the previous year, the stock experienced a 9% decline in after-hours trading. This drop was attributed to expectations of revenue growth decelerating to 9%. According to InvestingPro analysis, Adobe is currently trading near its calculated Fair Value.
Adobe is currently progressing with new product offerings and generative AI (Gen-AI) technologies. However, there is a perceived short-term disconnection due to the anticipated later impact of Gen-AI solutions on revenue, which is not expected until fiscal year 2026.
The analyst from Goldman Sachs acknowledged that Adobe's business has become increasingly complex due to various factors such as the mix of business segments, the correlation between net new annual recurring revenue and overall revenue, and the strategies around pricing, AI monetization, and new product launches.
InvestingPro data reveals Adobe's impressive gross profit margin of 88.66% and strong financial health score, indicating robust operational efficiency despite business complexities.
Despite these complexities, Goldman Sachs expressed a strong belief in Adobe's growth potential. The firm cited Adobe's consistent history of meeting or exceeding its initial DMNNARR and earnings per share (EPS) guidance, which could lead to double-digit growth in fiscal year 2025. This optimism is supported by Adobe's recent revenue growth of 10.91% and projected earnings of $18.68 per share for fiscal year 2024. Growth is expected to be driven by an increase in user seats and the strategic selling of upgrades and new products, as well as a shift to higher-tier offerings.
Additionally, consumption-based products are anticipated to lay the groundwork for value-driven revenue, with the enforcement of token limitations acting as a long-term growth driver. For deeper insights into Adobe's growth metrics and valuation, investors can access the comprehensive Pro Research Report available on InvestingPro.
Goldman Sachs also noted Adobe's momentum in comprehensive platform sales and the expansion of web and mobile functionalities as indicators of the company's robust market position. With analyst price targets ranging from $440 to $704.55, market sentiment remains largely positive, with a consensus recommendation of 1.85 (Buy). The upcoming analyst day in March is expected to be a significant event for investors, as it will provide further details on growth factors and market penetration.
In other recent news, Adobe has been the center of multiple analyst adjustments following its recent earnings announcement. BofA Securities lowered its price target for Adobe from $640 to $605, maintaining a Buy rating, citing the company's 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, highlighting the 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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