Beaten-Down Tech Stock Positioned for Long-Term Growth

September 17, 2024 05:01 AM PDT | By Team Kalkine Media

Beaten-Down Tech Stock Positioned for Long-Term Growth — Image source: Shutterstock

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Adobe (NASDAQ:ADBE) experienced an 8.5% decline in its stock price following its third-quarter fiscal 2024 results and a less optimistic forecast for the fourth quarter.

Adobe reported record revenue for the third quarter but has projected fourth-quarter revenue to fall between $5.5 billion and $5.55 billion, with non-GAAP earnings per share (EPS) expected to be between $4.63 and $4.68. The company’s full-year forecast remains in line with its earlier guidance, targeting a revenue range of $21.4 billion to $21.5 billion and a non-GAAP EPS of $18 to $18.20By the end of the third quarter, Adobe had achieved $15.9 billion in revenue and $13.61 in non-GAAP EPSThe midpoint of the updated annual projections suggests a revenue figure of $21.43 billion and a non-GAAP EPS of $18.27, aligning with or slightly exceeding previous estimates.

Despite these projections, Adobe's growth rate has been slowing, with the company poised to achieve around 10% year-over-year revenue growth for the second consecutive yearAlthough earnings growth has outpaced revenue growth, the overall pace of growth has not been sufficient to support Adobe’s premium valuation.

Adobe’s recent focus on artificial intelligence (AI) may offer a path to revitalized growthThe company, which pioneered the software-as-a-service model with its Creative Cloud suite in 2012, has integrated AI across its product lineupNew offerings such as Adobe Firefly, a generative AI tool for creative work, and AI enhancements for existing tools are aimed at boosting productivity and justifying potential price increases.

Adobe’s strategic push into AI and the development of new tools like AI Assistant for Acrobat and Adobe Express reflect efforts to enhance the value of its core offeringsThese innovations could provide long-term benefits by improving the efficiency and quality of work for creative and marketing teams.

In summary, while Adobe’s near-term financial performance may appear disappointing, its ongoing investments in AI and product innovation could position the company for sustainable growth in the futureThe current period may represent an opportunity to assess Adobe’s potential as it navigates its AI-driven transformation.

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