Adobe (Nasdaq: ADBE) reported Q4 earnings which beat consensus expectations on the top and bottom-line. Shares initially popped higher but gave up these gains to finish 2% lower in the following session.
Adobe is one of the top cloud stocks so it's been a big winner over the past few years as it transitioned into a subscription-based business that is integral to many corporations' operations. However, this means that the stock is under selling pressure in current market conditions due to rising interest rates and the 'reopening' trade. Yet, these results should give investors confidence that the company's business momentum remains intact.
Inside the Numbers
Adobe reported $2.61 in earnings per share for the quarter which topped expectations of $2.79 and was a 30% increase from the same quarter last year. Additionally, revenue increased by 26% to $3.9 billion with digital media revenue contributing the bulk of revenue at $2.9 billion. Analysts were looking for $3.75 billion in revenue.
The company said that its sales accelerated during the coronavirus as more work went remote, and the number of licenses increased as a result. So far, the company doesn't seem to be experiencing any sort of decline like other tech companies.
Adobe also issued guidance above expectations. For the fiscal year, Adobe expects $15.5 billion in revenue and adjusted earnings of $11.85 per share. Analysts had forecast $15.2 billion in revenue and $11.27 in EPS.
Stock Price Outlook
Adobe has essentially created a mini-monopoly around its tools for creators. This has made it one of the best-performing stocks of the past decade with a more than 1,200% gain. However, in the past few months, the stock has basically traded sideways as many tech stocks fell out of favor.
Yet, these earnings clearly indicate that its earnings and revenue growth remain on track, making its valuation even more attractive. Its price to earnings ratio has contracted from triple-digits to 35 which is attractive considering that it has 40% profit margins and double-digit revenue and earnings growth.
The selloff in tech stocks has been brutal and affected nearly every company. Some of the most expensive stocks likely won't recover, but it will prove to be a great entry point for high-quality ones that continue to gain market share. Based on its recent earnings, Adobe is likely to fit in this category.