ADBE

Why Adobe Stock Was Sliding Today

Shares of Adobe (NASDAQ: ADBE) were falling Friday after the cloud software giant beat estimates for its fiscal first quarter, but issued disappointing guidance for the current quarter, sparking concerns that competition was catching up to it and it was failing to fully capitalize on i opportunities of artificial intelligence (AI).

As of 2:15 p.m. ET, the stock was down by 14.1%.

A cloud image in a globe with arrows coming out of it.

Image source: Getty Images.

Adobe's steady growth isn't good enough

Adobe reported 11% revenue growth to $5.18 billion, which was slightly ahead of estimates at $5.14 billion.

Revenue from the digital media segment rose 12% to $3.82 billion, which included 11% growth in creative revenue to $3.07 billion. The digital experience segment registered similar growth, up 10% to $1.29 billion.

Remaining performance obligations, a proxy for backlog, rose 16% to $17.58 billion, showing a healthy growth in demand.

On the bottom line, adjusted earnings per share rose from $3.80 to $4.48, topping the consensus estimate of $4.38. That didn't include a $1 billion charge related to its decision to abandon its effort to acquire Figma after the deal faced regulatory pushback.

CEO Shantanu Narayen noted that the company had booked record revenue in the quarter, and said, "We've done an incredible job harnessing the power of generative AI to deliver groundbreaking innovation across our product portfolio."

Adobe's guidance disappoints

Despite the solid first-quarter results, guidance for the second quarter missed the mark. Management forecast revenue of $5.25 billion to $5.3 billion, which was short of the consensus expectation of $5.31 billion and would reflect a modest slowdown in revenue growth to 9% to 10%.

On the bottom line, Adobe guided for fiscal Q2 adjusted earnings per share of $4.35 to $4.40, which would equate to year-over-year growth of 11% to 12%, and which would be a decline from the first quarter. However, that was in line with the consensus estimate of $4.38.

Adobe shares are priced at a premium, trading at a price-to-earnings ratio of 30, and jitters about growth tend to lead to sell-offs in such situations. Pressure on the Photoshop maker is likely to remain until it can demonstrate it's experiencing clear tailwinds from AI.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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