Adobe Is Not Just Another Brick In The Wall

Adobe Sinks Like A Brick After Q3 Results 

Adobe’s NASDAQ: ADBE results for the 3rd quarter ensure the 3rd quarter earnings cycle is going to be an interesting one. Only two days after Wells Fargo analysts called the stock out as a crown jewel among blue-chip tech stocks the company reported blow-out earnings and garnered the attention of at least ten major sell-side firms. The most noteworthy feature of the results, other than their strength, is that Adobe managed to beat the consensus estimates for both the top and bottom line and raised its guidance. Other early-reporting S&P 500 companies have not been so fortunate. 

Adobe Reports Another Record Quarter 

Adobe had a very strong Q3 in which demand across all segments drove revenue to record levels. The $3.94 in consolidated revenue is up 22% over last year, 40% versus the 2019 period, and beat the consensus by 100 basis points. The 100 basis point beat isn’t that spectacular, we know, but the growth is on top of last year’s double-digit gains and against a high bar. On a segment basis, growth was led by Document Cloud services at 31% followed by a 23% and 21% increase in Creative and Digital Media. 

Moving down the report, the company was able to widen its margins at both the gross and operating levels to drive strong results on the bottom line as well. The company reported $2.52 in GAAP and $3.11 in adjusted earrings to beat the consensus by $0.23 and $0.09 respectively. The only weakness in the report is in the ARR metrics which show revenue growth to be slowing. The upshot is analysts at Oppenheimer think that will pass and maintained an outperform rating while raising their price target. As for the guidance, Adobe is expecting Q4 revenue near $4.07 billion versus the consensus $4.05. 

The Analysts Liked Adobe’s Results 

The Q3 results may not have been rally-inducing but there were strong nonetheless. The analyst’s community agrees with this sentiment if the activity we’ve seen has any bearing on the matter. The data from Marketbeat.com shows ten sell-siders have issued rating announcements or price-target upgrades since the results were released. Of those, eight included a price target increases with one, Oppenheimer, also upgrading the rating. Oppenheimer upgrade to Outperform from Positive setting a $680 price target to go with it. That compares to the $684 Marketbeat.com consensus and the $770 high price target held by Wells Fargo. The consensus is worth about 10% upside from current price action and trending strongly higher. This latest round of upgrades has the consensus target up 12% in the last 30 days and we don’t see this trend ending. 

The Technical Outlook: Adobe Falls Back To Support 

The hiccup in ARR may be the cause for Adobe’s plunge but, whatever the case, the pullback in price action is a buying opportunity in this high-growth stock. Assuming support can hold at the $625 level we see this stock trending sideways over the next quarter until the growth outlook loses the small amount of tarnish it now has. Longer-term, Adobe is a high-growth stock and one that is leveraging the cloud to full effect. We see this stock resuming its uptrend once the market works its way through some volatility.