Adobe (ADBE) Pre-Earnings Review: Is it Time to Invest?

Famed for its pioneering multimedia and creativity software offerings, Adobe Inc. (ADBE) is poised to unveil its fiscal first-quarter earnings (ended February 2024) on Thursday, March 14, 2024.

Analysts are anticipating a noteworthy 10.5% year-over-year surge in its first-quarter revenue, forecasted to hit $5.14 billion. Likewise, its EPS for the same quarter is projected to come in at $4.38, reflecting a 15.3% year-over-year rise. Moreover, the company’s impressive track record of surpassing its EPS and revenue estimates in each of the trailing four quarters underscores its resilience.

Over the past year, ADBE’s shares have soared by roughly 60%, a significant leap that surpasses the S&P 500 index's gain of approximately 32% over the same period. This impressive performance is largely credited to the company’s robust efforts in Artificial Intelligence (AI) innovation, which have propelled its growth trajectory.

In the past year, ADBE made significant strides in advancing creativity for its customers with the launch of multiple generative AI tools. Notably, on September 13, 2023, the company introduced Adobe GenStudio, a revolutionary solution harnessing generative AI to revolutionize the enterprise content supply chain.

This groundbreaking platform represents a major leap forward in content ideation, creation, production, and activation, empowering enterprises with unprecedented capabilities for innovation and efficiency.

Meanwhile, this year, February witnessed ADBE unveiling a beta AI assistant integrated into its Reader and Acrobat applications, capable of generating PDF summaries, alongside responding to queries related to the PDF documents.

While alternative AI models like ChatGPT also offer PDF analysis capabilities, they typically necessitate users to upload the document externally. In contrast, ADBE’s AI assistant is seamlessly integrated as a built-in feature, streamlining the document analysis process for users within the familiar interface of Reader and Acrobat applications.

Furthermore, ADBE’s generative AI tools are capable of substantially bolstering productivity. For instance, International Business Machines (IBM) revealed a game-changing productivity boost after testing ADBE’s cutting-edge generative AI tools. By harnessing ADBE’s technology, capable of crafting images from text, IBM revolutionized its marketing campaigns.

Billy Seabrook, the global chief design officer for IBM's consulting arm, mentioned that the 1,600 designers in his unit utilized ADBE’s tools to expedite idea generation and develop multiple variants for various segments of marketing campaigns. He noted that the typical two-week end-to-end cycle was significantly reduced to just two days.

ADBE’s shares have climbed 25.7% over the past nine months to close the last trading session on $551.69.

Here are the fundamental aspects of ADBE that could influence its performance in the near term:

Strong Financials

For the fiscal fourth quarter that ended on December 1, 2023, ADBE’s total revenue increased 11.6% year-over-year to $5.05 billion, while its gross profit rose 11.5% from the year-ago value to $4.41 billion.

Moreover, the company’s non-GAAP net income and non-GAAP EPS amounted to $1.96 billion and $4.27, up 16.9% and 18.6% from the prior-year quarter, respectively. In addition, its non-GAAP operating income improved 15.8% year-over-year to $2.34 billion.

Solid Historical Growth

Over the past three years, ADBE’s revenue and EBIT have grown at CAGRs of 14.7% and 16.2%, respectively. In addition, the company’s EBITDA, total assets, and levered FCF have improved at CAGRs of 14.8%,7%, and 14.8% during the same time frame, respectively.

Robust Profitability

The stock’s trailing-12-month net income margin of 27.97% is 992.9% higher than the 2.56% industry average. Likewise, its trailing-12-month EBIT margin of 34.26% is 614.9% higher than the industry average of 4.79%. Furthermore, ADBE’s trailing-12-month cash per share of $15.69 is 658.1% higher than the $2.07 industry average.

POWR Ratings Exhibit Solid Prospects

ADBE’s promising fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADBE has an A grade for Quality, consistent with its higher-than-industry profitability metrics.

Within the B-rated Software - Application industry, ADBE is ranked #29 out of the 132 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Stability, and Sentiment. Get all ADBE ratings here.

Bottom Line

ADBE's strategic focus on AI innovation has been a major driver of its success, evident from the launch of its groundbreaking generative AI tools. In addition, the validation from industry giants like IBM underscores the immense potential of ADBE's AI solutions, making them highly appealing for enterprises seeking cutting-edge technology for productivity gains.

Overall, ADBE’s sturdy fundamentals and bullish sentiment echoed by analysts for its upcoming quarter, paints a promising picture. Therefore, investors might find it advantageous to own the company’s shares for potential gains.

How Does Adobe Inc. (ADBE) Stack Up Against Its Peers? 

While ADBE has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Software - Application industry: eGain Corporation (EGAN), Karooooo Ltd. (KARO), and Rimini Street, Inc. (RMNI), carrying A (Strong Buy) ratings. To explore more Software - Application stocks, click here.    

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

ADBE shares fell $3.61 (-0.65%) in premarket trading Monday. Year-to-date, ADBE has declined -8.13%, versus a 7.20% rise in the benchmark S&P 500 index during the same period.

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