Insights

Why Adobe Stock Is Falling Today

What happened 

Shares of Adobe (NASDAQ: ADBE) were sliding this morning after the company reported its second-quarter results. While the tech company beat Wall Street’s consensus estimates for both earnings and revenue, investors appear disappointed with management’s guidance for the third quarter and for the 2022 fiscal year.

The tech stock fell by as much as 5.3% this morning and was down by 3.1% as of 10:25 a.m. ET. 

So what

Adobe reported non-GAAP (adjusted) earnings of $3.35 in the quarter, up from $3.03 in the year-ago quarter and above analysts’ consensus estimate of $3.31. 

Image source: Getty Images.

The company’s revenue increased by 14% from the year-ago quarter to $4.39 billion, which was enough to beat Wall Street’s consensus estimate of $4.34 billion for the quarter. 

Adobe CEO Shantanu Narayen said in a press release that the company achieved record revenue with “strong demand” across its Creative Cloud, Document Cloud, and Experience Cloud products. 

But instead of focusing on Adobe beating analysts’ top- and bottom-line estimates, investors directed their attention toward the company’s outlook. 

Management said non-GAAP earnings would be about $3.33 in the third quarter, below Wall Street’s average estimate of $3.40 per share. Additionally, the company expects revenue to be about $4.43 billion, which is less than the $4.51 billion consensus estimate from analysts. 

Adobe’s full-year guidance didn’t spur much investor enthusiasm either. The company’s 2022 non-GAAP earnings will be roughly $13.50 and revenue will be $17.65 billion, below Wall Street’s consensus estimate of $13.66 per share and $17.85 billion, respectively. 

Now what 

Adobe’s management said that its third quarter will be impacted by the war in Ukraine and the company’s decision to stop all new sales in Russia and Belarus. The company also noted that it will experience foreign exchange headwinds of $175 million over the next two quarters.

With inflation at a 40-year high and investors concerned about a potential slowdown in the economy, it’s not surprising that Adobe investors sent the stock lower after it issued disappointing guidance. 

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe Inc. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.

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