With guidance below consensus, Adobe is facing a setback that will cause a slight fall. Despite an 80% increase, analysts are optimistic about additional gains by 2024 and point to a possible buy-the-dip opportunity, depending on market signals. Oracle’s Q4 results coincide with FQ4, causing a temporary decline in shares. Business strength, steady growth, and strong cash flow indicate resilience in the face of lower-than-expected guidance, creating opportunities for share repurchases and balance sheet enhancement.
In this context, analysts may need to modify their views; however, the market is expected to continue rising when it solidifies the large gains made in 2023. After rising by 80% in the course of the year, the stock needs a significant pullback in order to continue rising in 2024.
With $5.05 billion in revenue for the quarter, Adobe posted a strong showing, up 11.5% year over year and setting a new record for the business. It is anticipated that this revenue milestone—beyond $5 billion—will be reached in upcoming quarters. The strength of digital media and digital experience drove a 60 basis point increase in revenue over consensus projections. Digital Media saw a 13% increase, driven mostly by a 14% boost in Document Cloud. Creative Cloud saw a 12% gain. The only source of revenue stream growth that could offset the modest declines in Products and Services was Subscription.
Good news on margins
operating and net income margins are improving, and the gross margin is stable year over year. At $2.34 billion, adjusted operating income represents roughly 46% of revenue. Excellent GAAP and adjusted earnings growth combined with a robust cash flow margin that exceeded consensus estimates. GAAP EPS increases by 27% while adjusted EPS increases by 19% to $4.27, above estimates by $0.13.
Although guidance is encouraging, it is a little below analysts’ expectations, which may be a result of the Federal Reserve’s policy change encouraging prudence. Three interest rate reductions are anticipated by the Fed for 2019, which should stabilize current corporate expenditures and encourage more spending all year long. Notably, the RPO of $17.22 billion represents a 13% rise from the previous year, suggesting revenue momentum for the current and following quarters.
In spite of this, analysts’ projections for Q1 sales of $5.10 to $5.15 billion and yearly adjusted EPS of $17.60 to $18.00 are met. This suggests strength in the later half of the year, giving some people cause to think about reducing and securing profits but not enough to close a position.
ADBE Buy Back Program
The ongoing buyback programmes of Adobe have resulted in a 17% increase in shareholder equity. The company’s solid balance sheet was reinforced in Q4 and shows higher cash, current, and total assets with unchanged debt and liabilities. As a result, there is considerable financial flexibility, as seen by the favorable debt-to-assets ratio of 0.12X and the debt-to-shareholder equity ratio of 0.22X. The number of shares has already decreased by more than 2% in 2023 as a result of ongoing buybacks that are being carried out steadily and with enough money left over from the existing authorization.
Adobe Stock (ADBE) Technical Analysis
Despite the fact that the Q4 results and guidance did not lead to price target adjustments or analyst upgrades, some analysts continued to support the company. Everyone seems to agree that even with the share price increase, it may have exceeded reasonable expectations. Analysts’ predictions for the coming year are changing, but they still have a Moderate Buy rating and a $613 price target. Even if the $613 target is rising gradually, the market may find it difficult to meet. Assuming that the stock is now trading at fair value, this estimate indicates that a new high may not occur for a quarter or two.
According to Adobe’s technical analysis, the trend is rising and approaching its top. If there isn’t anything to pique buyer interest, the price can retreat to $570 or even lower. The critical support level is roughly $520, and early in 2024 is when it might be tested.