Adobe's Q2 total revenue increased 10% year-on-year to $4.82 billion, better than analysts' average estimate of $4.77 billion; Adjusted EPS of $3.91 was better than the average analyst estimate of $3.79. Additionally, Adobe raised its full-year FY23 revenue and EPS estimates. The company believes that generative artificial intelligence (AI) functional software will stimulate market demand for its software. The company expects the total revenue for the year to be $19.25 billion to $19.35 billion (previously expected to be $19.2 billion), compared with analysts' expectation of $19.3 billion; It expects adjusted earnings of $15.65 to $15.75 per share (previously expected to be $15.60), compared to analysts' expectations of $15.50.
Long a software sales giant for creative professionals, Adobe is adding generative AI capabilities to its offerings. "Given our rich datasets, foundational models, and ubiquitous product interfaces, Adobe's groundbreaking innovations allow us to lead a new era of generative AI," Adobe CEO Shantanu Narayen said in a statement.
Here's what the major banks have to say about Adobe:
Barclays analyst Saket Kalia gave Adobe a "hold and see" rating, raising his price target to $540 from $485. Analysts say the Adobe share price rise stems from its pricing advantage, which is likely to become more pronounced in the second half of the year. Analysts noted that the company has a way to monetize Firefly, its generative AI tool. Furthermore, given the outlook for generative AI and the current regulatory environment, the lack of any updates on the deal to acquire Figma may be seen as a positive.
"Adobe's estimate for net new annual recurring revenue (ARR) from the digital media business is $410 million in the third quarter, with an implied estimate of approximately $460 million in the fourth quarter," the analysts wrote in the report. "Even without assuming that Firefly will have a performance contribution in the fourth quarter, we would consider the fourth quarter estimate to appear conservative." While we are not sure that performance growth can be maintained at the level of the second quarter by then, we believe the performance guidance set by the company means that this level can be sustained. "
Analysts added that Adobe has three ways to monetize its generative AI tool Firefly: using Creative co-pilot can boost average revenue per user; Increase user stickiness and improve user retention rate; Increase paying subscribers with a freemium model. "We're starting to feel this change in sentiment as FireFly starts to feel like a more real growth opportunity, and some investors are wondering if the potential deal with Figma is really as negative as feared a few months ago," the analysts said.
UBS analyst Karl Keirstead maintained a "neutral" rating on Adobe and raised his price target to $525 from $440. Analysts noted that Adobe's overall performance rose in the second quarter, particularly strong top-line and ARR growth in its core creative division, which should help calm investor concerns. Analysts are also optimistic that the company will benefit from generative AI, although the company appears to be more focused on applications than revenue (at least in the near term).
Morgan StanleyAnalyst Keith Weiss maintained a "hold on the sidelines" rating on Adobe, raising his price target to $510 from $470. Adobe's second-quarter results were "impressive," analysts said, adding that the company's upgraded guidance "shows solid execution in a tough macro environment." However, analysts also pointed out that given the uncertainty of the Figma deal, it is still open to debate whether the company's revenue can reaccelerate growth.
JPMorgan ChaseAnalyst Mark Murphy maintained a "neutral" rating on Adobe and raised his price target to $490 from $450. Adobe's second-quarter results showed "relative resilience," with slightly higher-than-expected net new ARR guidance for the third quarter and slightly higher guidance for both total revenue and net new ARR for fiscal 2023, analysts said. Analysts say the company remains relatively well positioned due to growth that can be achieved in the short term, coupled with some macro conservatism.
Goldman SachsMaintains a "Buy" rating on Adobe with a price target raised to $550 from $480. Analysts at the bank said that Adobe's second-quarter earnings report on Thursday coupled with recently announced products could directly change investors' narrative about artificial intelligence, and Adobe has the potential to be the main beneficiary. The company's "broad data-driven platform and product-led growth should allow it to seize this opportunity," the analysts said.
Additionally, Baird analyst Rob Oliver maintained a "neutral" rating on Adobe with a price target raised to $500 from $370;
Mizuho analyst Gregg Moskowitz maintains "neutral" rating on Adobe, raises price target to $520 from $450;
Piper Sandler analyst Brent Bracelin maintains an "overweight" rating on Adobe, raises price target to $572 from $500;
Stifel analyst J. Parker Lane Maintains 'Buy' Rating on Adobe, Price Target Raised to $550 From $400;
BofA analyst Brad Sills maintains "neutral" rating on Adobe, raises price target to $575 from $480;
Wells FargoMaintains an "Overweight" rating on Adobe with a price target raised to $600 from $525.