Categories Analysis, Technology

Adobe (ADBE) is gearing up to report Q1 earnings next week. Here’s what to expect

It is estimated that the tech firm's revenue and earnings increased year-over-year in the first quarter

Design software company Adobe Inc. (NASDAQ: ADBE) is preparing to report earnings for the first quarter of fiscal 2024. The company is successfully monetizing its artificial intelligence initiatives after integrating the technology across the platform. In the last quarter, revenues rose to an all-time high, with all operating segments delivering better-than-expected performance.  

The Stock

The value of Adobe’s shares has more than doubled in the past one-and-half years, after bouncing back from a multi-year low. The stock made steady gains in the early weeks of the year, but it experienced some weakness recently. Investor sentiment was hurt after the company recently terminated its $20-billion deal to acquire Figma Inc., a cloud-based design platform. While the deal could have given a big boost to Adobe’s portfolio, the company is still well-positioned to continue dominating the creative software field.

Last year, Adobe performed quite well on all fronts, surpassing the broad industry, thanks to the strong subscriber growth and effective implementation of AI across all products. The uptrend will likely continue this year, though the management is a bit cautious in its full-year outlook. The company’s leadership has exuded confidence in maintaining operating margins at the recent high of above 45%. Margins have benefitted from recent measures to streamline R&D and marketing expenses while increasing investments in technological innovation focused on AI.  

Positive Outlook

When the tech firm reports first-quarter 2024 numbers on Thursday, March 14, after the closing bell, Wall Street will look for adjusted earnings of $4.38 per share, representing a 15% increase from the profit the company generated in the prior-year quarter. It is estimated that February-quarter revenues grew about 10% annually to $5.14 billion. Meanwhile, Adobe executives predict earnings of $4.35-4.40 per share and revenues in the range of $5.10 billion to $5.15 billion for Q1.

From Adobe’s Q4 2023 earnings call:

“We believe that every massive technology shift offers generational opportunities to deliver new products and solutions to an ever-expanding set of customers. AI and generative AI is one such opportunity, and we have articulated how we intend to invest and differentiate across data, models, and interfaces. We have delivered against this strategy and are pleased that a number of our groundbreaking innovations, including our Firefly models and integrations across Creative Cloud, Liquid Mode, and integrations across Document Cloud and AI services in our Real-time Customer Data Platform and integrations in Experience Cloud are now seeing tremendous usage by customers.”

Record Revenue

Interestingly Adobe’s earnings either beat or matched estimates in every quarter for more than a decade, a trend that is expected to continue. In the last quarter, revenues rose 12% to a record high of $5.05 billion and came in above estimates. The Digital Media and Digital Experience segments, which together account for about 98% of total revenues, expanded in double digits. As a result, adjusted profit climbed 19% annually to $4.27 per share.  

ADBE has been trading above its 52-week average over the past six months. The stock made modest gains in early trading on Friday after opening higher.

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