Adobe Systems (ADBE) should meet or exceed fiscal first-quarter expectations amid digital media upside, though sentiment will likely hinge on the underlying drivers of the results, notably progress with generative artificial intelligence, according to RBC Capital Markets.
In a Monday note reiterating an outperform rating and $650 price target on the stock, RBC analysts including Matthew Swanson and Matthew Hedberg said they expect solid results from the cloud-based software company on March 14.
The “focus metric” for Adobe is net new annual recurring revenue, which the analysts said has the potential for outperformance in digital media. Management guided NNARR at $410 million, while the consensus is $414.5 million, according to the brokerage’s report. From a seasonality perspective, the guidance puts first-quarter ARR in line with the three-year average.
“We’d note the average beat over the past four quarters has been 10%, which would point to $455 million,” Swanson and Hedberg said. An in-line beat with historical seasonal trends would imply a full-year digital media ARR of $2.1 billion, above the current consensus view of $1.92 billion.
While RBC’s analysis highlights potential conservatism, the analysts anticipate management will take a more measured approach to guidance and address competition concerns that have weighed on investor sentiment.
The stock is down 12% since the fourth-quarter print, underperforming mega-cap performance and the S&P 500, the report showed. Shares of Adobe ticked up 1.4% in afternoon trade.
“From a sentiment standpoint, we expect management to address recent investor concerns over competitor generative video products, particularly Sora,” Swanson and Hedberg wrote. Management will likely emphasize a focus on delivering an integrated enterprise-grade solution rather than being first to market, they said.
RBC is modeling for first-quarter revenue of $5.13 billion on adjusted earnings per share of $4.36. Analysts on average are forecasting slightly stronger revenue of $5.15 billion on normalized EPS of $4.38.