Adobe (ADBE) Heads Lower On Weak Guidance, But It Fared Much Better Than DocuSign
3:01 pm Friday, June 17th, 2022
Adobe (ADBE) is heading lower following its Q2 (May) earnings report last night, but it has recovered somewhat after an initial move lower. As we said in our preview, we had concerns going into this report in light of DocuSign’s (DOCU) recent weak result and subsequent sell-off. Granted, DOCU tends to focus more on e-signature technology, but we did have concerns about the digital document creation industry generally.
Adobe reported modest EPS and revenue upside in Q1, but the bigger concern was that it issued downside guidance for next quarter for the third time in a row. So why is the stock holding up fairly well?
For one thing, DOCU had mentioned sales reps leaving the company partly because it was harder to close deals post-COVID. There was none of that on Adobe’s call last night.
Adobe said that the interest level from executives all around the world is very high and they have made going digital a priority. It sounds like the guidance was less about softer demand or a weak pipeline. It seems more related to management just being cautious given the macro headwinds and about timing as the summer tends to be a slower season. Adobe says its 2H confidence remains undiminished.
We also think Adobe’s comments about a mostly positive customer reaction to its new pricing structure is helping the stock. Adobe bumped up prices in late Q2, its first real change since 2017, which should act as a bit of a tailwind in 2H22. Adobe has added many new features since the last price increase and customers recognize that.
Adobe also could have probably gotten a bigger price increase, but it wants to focus more on adding millions of new users. Adobe is a growth business at heart and it wants to grow the user base.
We also think that the 45% pullback in the stock since early December, including a big drop since DOCU’s earnings report on June 9, indicates that some rough guidance was probably expected by investors.
Overall, Adobe seems to be faring better than DocuSign, which is also facing some competitive pressures. We are concerned about three consecutive quarters with downside guidance. We would want to see that stabilize before buying the stock. Long term, Adobe made it clear that enterprises, small businesses and consumers are moving toward digital document creation. However, Adobe is coming off some massive results during the pandemic, so it is natural to see its business start to normalize. That, combined with macro headwinds could make Adobe’s results a bit rocky for the next few quarters.
