Adobe shares drop nearly 14% on weak quarterly revenue guidance

Adobe shares fell about 14% on Friday after the firm published first-quarter results that exceeded expectations but provided a low quarterly revenue outlook.

The move represented the stock’s worst loss since September 15, 2022, when shares fell 16.8%.

According to LSEG, formerly known as Refinitiv, the design software company reported adjusted earnings per share of $4.48, which was higher than the $4.38 expected by analysts. Its revenue of $5.18 billion beat experts’ estimates of $5.14 billion.

Adobe predicts adjusted earnings per share in the current quarter of $4.35 to $4.40, compared to analysts’ expectations of $4.38. Revenue is expected to be $5.25 billion to $5.30 billion, somewhat less than the $5.31 billion previously predicted. The business has also announced a $25 billion share buyback.

Adobe has recently introduced an artificial intelligence assistant for its Reader and Acrobat programs, which may assist users in processing information from lengthy PDF documents.

Bank of America analysts reduced their price objective for Adobe shares to $640 from $700 and maintained their buy recommendation, citing optimism about Firefly, the company’s generative AI picture creation tool.

“No change in our view that Adobe is a major AI beneficiary,” the analysts said in an investment letter Thursday. “While the monetization ramp is slower than anticipated, Firefly is one of the [most] widely used generative AI offerings, with potential for multiple paths to monetization.”

Barclays reduced its price objective for Adobe shares to $630 from $700 while keeping an overweight rating on the stock. Its analysts stated Friday that they anticipate the company to recover and “would be buying this dip because pricing is masking the underlying strength in Creative Cloud.”

Morgan Stanley analysts maintained their overweight rating and $660 price objective for Adobe shares on Friday, stating that “more patience is likely warranted.”

“A smaller than expected beat in Digital Media Net New ARR likely increases investor concerns around competitive pressures,” the analysts stated in a note. “However a growing number of vectors for monetizing GenAI and new monetizable solutions coming online in 2H24 should help improve the narrative going forward.”

— CNBC’s Jordan Novet contributed to this story.