ADBE pumps after strong earnings and upgraded guidance

Adobe (ADBE) shares jumped on Thursday and Friday after the digital media and marketing software company surpassed Wall Street’s expectations for its fiscal first quarter and forecasted more significant revenue growth for the year.

Solid earnings

ADBE reported non-GAAP profits per share of $3.80 for the first quarter of fiscal 2023, above the analysts’ estimate by 3.8%. In addition, the number increased by 12.8% year-over-year.

Overall revenues were $4.66 billion, above the $4.61 billion in Wall Street expectations. The number increased by 9% on a reported basis and 13% on a constant currency basis compared to the same quarter last year.

The outstanding success of Adobe Creative Cloud, Document Cloud, and Experience Cloud drove top-line growth. In addition, subscription income growth contributed positively.

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The gross margin was 87.8%, down ten basis points (bps) from the prior year. Adobe incurred $2.5 billion in operational expenditures, a 15.2% rise from the previous year. The number increased by 280 basis points to 53.7% of total sales. As a result, the adjusted operating margin was 45.8%, a year-over-year decline of 100 basis points.

Even better guidance

Adobe anticipated adjusted earnings of $3.78 per share on revenues of $4.77 billion for the upcoming quarter. This is based on the guidance’s midpoint. Analysts had anticipated earnings of $3.76 per share on revenues of $4.75 billion for the second quarter of the fiscal year.

Adobe increased its aim for net new annualized recurring revenue from its core digital media business from $1.65 billion to $1.7 billion for the entire year.

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In addition, Adobe predicted fiscal 2023 adjusted profits per share of $15.30 to $15.60. The $15.45 midpoint is above Wall Street’s target of $15.29. Prior earnings estimates for Adobe ranged from $15.15 to $15.45 per share.

“Adobe drove record Q1 revenue and we are raising our annual targets based on the tremendous market opportunity and continued confidence in our execution,” Chief Executive Shantanu Narayen said in a news release. “Creative Cloud, Document Cloud, and Experience Cloud are mission-critical in fueling the global digital economy.”

Ruined acquisition?

In recent weeks, ADBE stock has been under pressure due to rumors that the US Department of Justice may reject Adobe’s $20 billion acquisition of Figma. The Justice Department is worried that Adobe’s acquisition of Figma may limit the design software alternatives available to creative professions. Adobe produces products such as Photoshop, Illustrator, Premiere, and Acrobat.

Adobe revealed its intention in September to acquire Figma, a web-first collaborative design tool. Still, the company anticipates closing the purchase this year.

The stock price is now testing the 200-day moving average (blue line) near $355. If it closes above it, the medium-term trend could change to bullish, targeting this year’s highs at $400.

Alternatively, failure to breach the 200DMA could cause frustration and profit-taking, likely dragging the price lower to the $320 region.