Adobe Stock Experiences Profit Taking After Price Rally

Last Updated: 18. Dezember 2023By

There was a significant profit taking after the release of the figures from US software giant Adobe Systems. Although expectations were exceeded, investors temporarily parted ways with the papers. The decisive factor for the setback was the forecast, which the market apparently had hoped for more. However, the share price is still well ahead of the Nasdaq technology index (+42%) with a share price increase of an impressive 73% in 2023.

Adobe – a major force in the software industry Adobe Systems has become an integral part of the software industry. The company provides software that helps customers create, publish and measure digital content. The product range includes graphic and image editing programs, audio and video editing systems and web analytics tools.

Some of the best known products are Photoshop, Acrobat, Flash and Dreamweaver. Adobe Systems‘ software is supplied to hardware manufacturers, software developers and service providers, as well as individual customers and the advertising industry.

Long-term impressive success story In recent years, the company has grown strongly. Since 2006, revenues have more than sextupled to $17.60 billion. At the same time, profits have risen from $506 million to $4.75 billion. The company now employs more than 25,000 people worldwide.

Shift to cloud-based business model brings in strong profits Since 2013, Adobe has been very successful in shifting to a cloud-based business model. This means that the software is no longer sold, but rented long-term. The company therefore sells subscriptions to its customers and enjoys recurring and more profitable income in the long term.

This has enabled the company to significantly increase its profit margin in recent years. In 2014, the profit margin (net profit in relation to revenue) was 6.47%, while in 2023 (Note: Adobe’s financial year always ends on 30 November), Adobe achieved an impressive operating margin of 29.3%.

Further growth in the fourth quarter In the fourth quarter, the software specialist was able to make further gains. Revenue rose 11.5% to $5.05 billion, beating analyst estimates by another $30 million (source: Seeking Alpha). Let’s take a look at the company’s key business segments: The Digital Media segment (Creative and Document Cloud, including Photoshop) achieved revenue of $3.72 billion (+13%), while the Digital Experience segment (marketing and analytics software including Marketo) posted revenue of $1.27 billion (+10%). The Subscription segment as a whole achieved a revenue increase of 12% to $4.763 billion.

Overall, Adobe achieved a net profit of $1.48 billion or $3.23 per share excluding special items. This was 27% above the previous year’s level.

Forecast disappoints investors For the full financial year 2023/2024, Adobe is targeting revenue of at least $21.4 billion (2022/2023: $19.4 billion). This represents a revenue growth of 10%. The adjusted earnings per share are expected to be between $17.60 and $18.00. Analysts had previously been expecting an average of $18.00.

Conclusion: The Adobe management is currently optimistic, but apparently investors had hoped for higher dynamics due to the increased use of AI in the products. However, given the strong share price performance in the current financial year, the profit taking was expected. Based on the management’s profit forecast, the share is currently trading at a P/E ratio of just over 33x (based on 2023/2024).