Adobe (ADBE) Digital Media Revenue Contribution To Be Fueled By AI Optimism

$Adobe(ADBE)$ is scheduled to report its fourth-quarter fiscal 2024 results on 11 Dec after market close.

ADBE is expected to report a rise in fourth-quarter revenue, owing to healthy demand for its large suite of design software as it invests into generative artificial intelligence features. For fourth-quarter fiscal 2024, Adobe projects total revenues between $5.50 billion and $5.55 billion.

Adobe expects non-GAAP earnings between $4.63 per share and $4.68 per share. Consensus Estimate for revenues is pegged at $5.54 billion, suggesting growth of 9.71% from the year-ago quarter’s reported figure.

Consensus estimate for earnings per share is expected to come in at $4.67 which indicate 9.13% growth from the figure reported in the year-ago quarter.

Adobe Market Reaction -> Positive Outlook For 2H Of 2024

In November 2024, JPMorgan has reaffirmed their overweight rating and highlight that Adobe has a positive outlook for the second half of the year. The factor highlighted points to pricing, GenAI traction, and product vision as key drivers for Adobe's expected performance.

Adobe's Creative Cloud Net New ARR is forecasted to grow year-over-year in the third and fourth quarters, marking a shift from the previous three quarters of decline. This change is attributed to pricing transitions and the potential for increased traction in Adobe's GenAI portfolio, which includes products like Firefly Services and Acrobat AI Assistant. The upcoming MAX user conference is also expected to showcase Adobe's advancements in AI.

The last quarter, the main revenue contributor when Adobe reported a record second-quarter revenue of $5.31 billion, marking an 11% year-over-year increase, primarily driven by the Acrobat AI Assistant and the Firefly platform.

Adobe AI Initiatives Driving Growth

A significant contributor to Adobe’s optimistic outlook is its aggressive push into artificial intelligence. Adobe has been integrating AI across its product suite, which includes Creative Cloud, Document Cloud, and Experience Cloud. The introduction of Adobe Firefly, a family of generative AI models for creative expression, has been a pivotal development. Firefly’s features, such as text-to-image generation and generative fill tools in Photoshop, are designed to enhance the productivity and creativity of design professionals​.

These innovations are not only enhancing existing products but are also opening new market opportunities. Feedback from partners within Adobe's ecosystem has been positive, with reports of good momentum for Adobe in August and September.

There is one significant feedback from one partner that noted a broadening usage of Adobe's tools due to their efficiency, and a shift in the market towards Adobe because of competitive pricing increases. This feedback aligns with JPMorgan's constructive view on Adobe's growth, particularly as they project an acceleration in the third and fourth quarters.

This might explain why we are seeing Adobe gathering more than 55% (59.45%) of the market share in the application software space. They are currently ranked number one.

Top Competitors and Alternatives of Adobe

The top three of Adobe’s competitors in the Application Development category are Microsoft Azure with 15.13%, JIRA Software with 4.04%, Plaid with 3.54% market share.

As we can see that Azure is trying to catch up with Adobe but Adobe has manage to have a strategic position to capitalize on the ongoing digital transformation trend.

Strategic Focus and Future Outlook

Adobe’s strategy focuses on sustainable growth through innovation and careful cost management. The company is channeling most of its investments into research and development rather than marketing, which is expected to sustain its growth momentum. Analysts believe that Adobe’s emphasis on leveraging AI to enhance its product offerings will keep it ahead of the curve in the competitive software market​​​.

Adobe (ADBE) Price Target Forecast

Based on 30 Wall Street analysts offering 12 month price targets for Adobe in the last 3 months. The average price target is $620.88 with a high forecast of $703.00 and a low forecast of $450.00. The average price target represents a 13.50% change from the last price of $547.05.

This positive rating on the price target could be due to the positive outlook that market has for Adobe, but I would think we need to exercise some caution as we have seen how some of the AI software have been performing after their earnings though their earnings beat expectations.

Adobe (ADBE) Ownership - Quite Evenly Distributed

The ownership structure of Adobe (ADBE) stock is a mix of institutional, retail, and individual investors. Approximately 67.33% of the company’s stock is owned by Institutional Investors, 0.15% is owned by Insiders, and 32.52% is owned by Public Companies and Individual Investors.

Adobe (ADBE) Hedge Fund Reducing Their Shares - Figure Not Much Of A Concern

We saw the hedge funds decreasing their holdings by 547.5K shares in the last quarter, this is despite a good second quarter earnings which saw the revenue went up by 11% year-over-year.

But the amount of shares might not trigger much of a concerns as that was small compared to the increase from May 2024.

Adobe (ADBE) Investor Sentiment Neutral Despite Recent Stock Price RIse

If we looked at how investors are feeling about Adobe recent performance, it does not seem to have more portfolios holding ADBE in the last 30 days, in fact we saw a dip of 0.6%, but over the last 7 days, we do see an increase of 1.1%, this could be due to the AI optimism brought by some of the software sector earnings.

But these earnings in the past week have not been performing, some of them have dipped despite earnings beat. So I would think that investors might be taking a more cautious approach and stay neutral ahead of ADBE earnings.

Technical Analysis - MACD and Multi-timeframe (MTF)

As we have seen how ADBE have breakout from consolidation in early December and have been trading higher, this is also due to the AI optimism brought by some of the AI software names, but as seen in yesterday trading, most of these AI software have suffered declines.

Despite that, ADBE manage to trade above the short-term and long-term MA period, and MACD is still showing an upside movement without any sign of slowing down.

Though MTF is not giving a strong upward trend signal, we can still look at ADBE as there is a potential earnings surprise. But whether are we going to see a price surge or gap up after earnings, we will have to watch closely.

Summary

I would think it is better to stay cautious on ADBE as we are seeing some consolidation for the AI software related stocks, so even if ADBE manage to provide earnings surprise, we could still see stock price trading in volatility.

I will be watching the price action and see if ADBE is worth taking a position on 11 Dec before its earnings.

Appreciate if you could share your thoughts in the comment section whether you think ADBE would have an earnings surprise on the back of AI optimism.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.