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Adobe (ADBE) stock tanked about 8% on March 13 despite a record Q1 earnings beat after the long-time CEO Shantanu Narayen said he’s stepping down after 18 years at the helm.
As investors responded to the leadership bombshell, ADBE slipped below its 20-day moving average (MA), further accelerating bearish momentum on Friday.
Versus its year-to-date high, Adobe shares are now down nearly 25%.
Why Narayen’s Departure Is Bearish for Adobe Stock
Narayen’s announcement is particularly jarring for ADBE shares because he was the chief architect of the firm’s highly successful shift to the Creative Cloud subscription model.
Moreover, the management change comes at a critical inflection point at which Adobe faces existential threats from generative artificial intelligence (AI) startups and open-source competitors.
Investors generally dislike leadership uncertainty during major tech shifts.
In short, investors fear the incoming executive may struggle to navigate the AI disruption era that’s currently compressing Adobe’s once-impenetrable margins.
In Q1, ADBE adjusted operating margin contracted by 10 bps, signaling its aggressive investments in AI research and development (R&D) and GPU infrastructure are eating into its historically high profitability.
Barclays Downgrades ADBE Shares to ‘Equal Weight’
Barclays analyst Saket Kalia cautions against buying the dip in Adobe shares.
In a research note dated March 13, Kalia downgraded the software firm to “Equal Weight,” arguing its own AI success is cannibalizing its image/video marketplace business.
Customers who used to buy high-margin stock photos are now using tools like “Adobe Firefly” to generate custom images for free or at a much lower cost via credit packs.
This resulted in a $60 million shortfall in ADBE’s net new annual recurring revenue (NNARR) in Q1 compared to the management’s estimate of $460 million, he added.
Note that Adobe’s relative strength index (14-day) at about 37 further reinforces that the bearish momentum may not be over yet.
What’s the Consensus Rating on Adobe?
Other Wall Street analysts, however, disagree with Kalia’s cautious view on ADBE stock.
According to Barchart, the consensus rating on Adobe Inc remains at “Moderate Buy” with the mean price target of about $403 indicating potential upside of nearly 60% from here.
