What Happened:
Shares of creative software maker Adobe (NASDAQ:ADBE) jumped 17% in the pre-market session after the company reported a “beat and raise” quarter. First-quarter earnings results beat analysts' revenue, remaining performance obligations (RPO – leading revenue indicator), and EPS expectations. These beats were driven by massive outperformance in its net new Digital Media ARR (annual recurring revenue), which clocked in at $487 million (vs estimates of $434 million). Thanks to the strong results, Adobe upgraded its full-year net new Digital Media ARR and EPS guidance, sending the stock price higher. Its revenue guidance for next quarter missed Wall Street's estimates, but that didn't matter too much because the market cares most about its digital media segment.
Overall, this was a great quarter that put a big dent in the bear argument that ADBE’s best days are behind it due to increased competition.
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What is the market telling us:
Adobe's shares are very volatile and over the last year have had 4 moves greater than 5%. But moves this big are very rare even for Adobe and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 14.6% on the news that the company reported first-quarter results and provided revenue guidance for the next quarter, which fell below analysts' expectations as its net new digital media ARR guidance of $440 million fell short of analysts' $468 million forecast. Free cash flow also came in weaker, falling below Wall Street's estimates.
On the other hand, Adobe exceeded analysts' billings expectations during the quarter. Its net new digital media ARR of $432 million beat estimates of $415 million, enabling the company to top Wall Street's revenue and EPS projections.
During the earnings release, Adobe announced a new $25 billion share repurchase program.
Zooming out, this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely disappointed by its digital media segment guidance.
Adobe is down 9.3% since the beginning of the year, and at $525.86 per share it is trading 17.2% below its 52-week high of $634.76 from February 2024. Investors who bought $1,000 worth of Adobe's shares 5 years ago would now be looking at an investment worth $1,918.
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