Adobe Shares Plummet 9% as Weak Revenue Guidance Overshadows Record Fiscal Third Quarter

Adobe's shares fell 9% as the company's weak revenue guidance overshadowed its record fiscal third quarter. The creative software provider expected Q4 revenue in the range of $5.5 billion to $5.55 billion, short of analyst forecasts of $5.6 billion. The net new annual recurring revenue guidance (NN ARR) of $550 million missed the consensus of $570 million. However, adjusted earnings per share (EPS) in the range of $4.63 to $4.68 were in line with estimates of $4.65.

Key Takeaways:

• Adobe's Q4 revenue guidance was short of analyst forecasts, missing the mark by $60 million.
• The company's net new annual recurring revenue guidance (NN ARR) of $550 million was also lower than the consensus of $570 million.
• Adjusted earnings per share (EPS) in the range of $4.63 to $4.68 were in line with estimates of $4.65.
• Jefferies analysts attributed the Q4 revenue guidance miss to the timing of large deals and Cyber Monday, in addition to extra conservatism amid accelerating AI usage.
• The analysts believe FY25 could be the year of AI monetization for Adobe, driven by the adoption of AI and Gen AI usage.
• Adobe's Q3 results were "broadly strong," with revenue of $5.41 billion and adjusted EPS of $4.65.
• Adobe CEO Shantanu Narayen highlighted the company's "groundbreaking advancements in AI across Creative Cloud, Document Cloud, and Experience Cloud."

Statistics:

• Q4 revenue guidance: $5.5 billion to $5.55 billion
• Analyst forecast: $5.6 billion
• Net new annual recurring revenue guidance (NN ARR): $550 million (vs analyst consensus of $570 million)
• Adjusted EPS: $4.63 to $4.68 (in line with estimates of $4.65)
• Revenue growth: 11% year-over-year (Q3)
• Adjusted EPS growth: 9.7% year-over-year (Q3)

Sources:

• Jefferies analysts (note to clients)
• Adobe CEO Shantanu Narayen (statement)
• Adobe's quarterly earnings report (full text available at the link: unknown)