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Adobe shares tank despite earnings beat

 

Friday, March 15, 2024

Today’s headlines

What’s happening: Shares of Adobe fell in after-hours trading on Thursday, following the release of the company’s first-quarter results.

What happened: The Photoshop software maker reported better-than-expected sales and earnings for its latest quarter.

However, Adobe issued a weak sales forecast for the current quarter amid concerns over stiffening competition.

How were the results: The San Jose, California-based company reported a low double-digit increase in sales in the quarter ended March 1.

  • Revenues grew by 11% year-over-year to $5.18 billion, which topped the consensus estimates of $5.143 billion.
  • Earnings came in at $4.48 per share, which exceeded Wall Street expectations of $4.38 per share.

Why it matters: Adobe has been facing stiff competition from new AI-based start-ups like Stability AI and Midjourney, which are threatening to grab market share. Several firms and customers have been focusing on lowering their costs in the elevated interest rate environment, which has weighed on demand for Adobe’s AI-integrated products.

The company had to abandon its $20-billion merger agreement with cloud-based designer startup Figma last December, due to regulatory setbacks.

With the latest results, Adobe topped market expectations on both top- and bottom-line for the fifth quarter in a row.

The company’s digital media unit saw sales growing 12% to $3.82 billion, while revenues from the unit that includes marketing and analytics software climbed 10% to $1.29 billion.

Its remaining performance obligations came in at $17.58 billion at the close of the quarter, while cash flows from operations were $1.17 billion.

Adobe, which repurchased around 3.1 million shares during the quarter, announced a fresh stock repurchase program worth $25 billion through March 14, 2028.

“Adobe drove record Q1 revenue demonstrating strong momentum across Creative Cloud, Document Cloud, and Experience Cloud,” CEO Shantanu Narayen said during the earnings call.

Management guided to revenues of $5.25 billion to $5.30 billion for the second quarter, lower than market expectations of $5.31 billion. They also projected $440 million in new recurring creative business for the current quarter, below market estimates of $459 million.

The company guided to second quarter adjusted earnings of $4.35 to $4.40 per share, short of estimates of $4.38 per share.

How shares responded: Adobe’s shares dipped 11% to $507.95 in the extended trading session, following the release of quarterly results on Thursday. The stock has gained around 8% over the past six months, after surging 77% in 2023.

What to watch: Investors will continue monitoring rising competition from several start-ups. Markets will also watch the US Federal Reserve’s monetary policy decision, which could impact the company’s overall results ahead.

The markets today

The Canadian dollar will be in focus today ahead of a basket of major economic reports

Context: The CAD/USD forex pair fell to an eight-day low on Thursday, following higher-than-expected inflation data from the US.

Details: The core producer price index for the US increased by 2% year-over-year in February, higher than market expectations of a 1.9% increase. This raised prospects of the US Federal Reserve delaying interest rate cuts this year. The latest data was followed by a hotter-than-expected consumer price report on Tuesday.

Strength in the greenback exerted pressure on the loonie. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.6% to 103.36 on Thursday.

Canada’s manufacturing sales grew by 0.2% to C$71.1 billion in January, compared to a 1.1% decline in the previous month.

A rise in the price of crude oil, one of Canada’s major exports, limited the overall losses for the CAD/USD forex pair. WTI crude oil prices gained $1.54 to settle at $81.26 per barrel on Thursday.

The CAD/USD forex pair fell around 0.5% to 1.3535 on Thursday, hitting its lowest level since March 6. The S&P/TSX Composite Index declined by 0.64% to close at 21,829.85.

What to watch: Investors await the release of economic reports on housing starts, foreign investment in Canadian securities and wholesale sales from Canada today. Housing starts in Canada, which fell by 10% to 223,589 units in January, are expected to increase to 230,000 in February.

Analysts expect wholesale sales in Canada to decline by 0.6% in January, following a 0.3% gain in the previous month.

Other Markets: European indices closed mostly lower on Thursday, with the FTSE 100, DAX 40 and STOXX Europe 600 Index down by 0.37%, 0.11% and 0.18%, respectively, and the CAC 40 up by 0.29%.

The news shaping the markets

Russia announced a ban on 227 US citizens from entering the country. The news sent the safe-haven US dollar index higher in forex trading this morning.


Indonesia’s trade surplus shrank to $0.87 billion in February, from $5.46 billion in the year-ago month. The latest reading also came in below market estimates of $2.32 billion, exerting pressure on the IDR/USD forex pair.


China’s new home prices dipped by 1.4% year-over-year in February. This being faster than the 0.7% decline recorded in the earlier month sent the CNY/USD pair lower in forex trading this morning.


Colombia’s consumer confidence index declined by 1.5 points to a reading of -9.4 in February, exerting pressure on the COP/USD forex pair.


Singapore’s unemployment rate came in unchanged at 2.0% in the fourth quarter, sending the SGD/USD pair lower in forex trading this morning.

What else to watch today

France’s inflation rate, Italy’s inflation rate, value of retail sales and balance of trade, India’s foreign exchange reserves and balance of trade, US export prices, import prices, NY Empire State manufacturing index, industrial production, capacity utilization rate, manufacturing production, University of Michigan consumer sentiment, Baker Hughes crude oil rigs and Baker Hughes total rigs, Turkey’s central government budget balance, as well as China’s New yuan loans, money supply M2, value of outstanding loans and total social financing.


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