Adobe stock fell Wednesday after the digital media and marketing software firm reported quarterly results that edged above estimates but gave disappointing guidance. Several Wall Street analysts cut their price targets on ADBE stock after the report.
Adobe's sales rose just 9% in its fiscal first quarter ended March 4, marking its slowest growth rate in years. However, when adjusted for the extra week in the year-earlier quarter and constant currency, the growth rate was 17%, Adobe said late Tuesday.
The single-digit revenue growth rate will "raise eyebrows," Third Bridge analyst Scott Kessler said in a note to clients. The last time Adobe reported revenue growth in the single digits was back in fiscal 2014 when it was transitioning to a cloud-computing business model, he said.
Adobe's revenue growth on a year-over-year basis has decelerated for four straight quarters.
ADBE Stock Sinks After Report
On the stock market today, ADBE stock sank 9.3% to close at 422.90.
ADBE stock has an IBD Relative Strength Rating of 26 out of 99, according to IBD Stock Checkup. That puts it just above the bottom quartile of stocks for performance over the past 12 months.
On Wednesday, at least 10 Wall Street firms lowered their price targets on ADBE stock.
Adobe "is clearly going through a revenue deceleration," UBS analyst Karl Keirstead said in his note to clients. It is also the first large software company to flag weakness in Europe because of the Russia-Ukraine conflict, he said.
However, a planned price increase for its Creative Cloud software should help "soften the blow," Keirstead said. He rates ADBE stock as neutral with a 12-month price target of 460.
The price increase will go into effect in May. The last time Adobe raised prices for its software for creative professionals was in March 2018, after announcing the increase in October 2017.
Competition In Creative Software
Some analysts have speculated that Adobe is seeing increased competition in creative software from rivals like Canva.
Adobe Chief Financial Officer Dan Durn said any increased competition isn't showing up in the company's customer engagement and retention statistics. Those metrics are strong and at pre-pandemic levels, he told Investor's Business Daily.
"Competition in our end markets is not new," he said. "We're going to continue to do what makes Adobe special, which is drive industry-leading innovation, make our customers successful and deliver tremendous value to our customers."
ADBE stock ranks second out of eight stocks in IBD's Computer Software-Desktop industry group. It has an IBD Composite Rating of 60 out of 99. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
