Adobe Systems, Inc. (NASDAQ: ADBE) stock rallied in Thursday's after-hours session following the release of its second-quarter results.
The Adobe Analyst: Piper Sandler analyst Brent Bracelin reiterated an Overweight rating for the stock and increased the price target from $500 to $572, suggesting about a 17% upside from current levels. The analyst also stated that the stock continued to be Piper Sandler's top software pick to own for 2023.
The Adobe Thesis: Bracelin said Adobe reported solid quarterly results, with revenue rising 9.8% year-over-year, surpassing Piper Sandler's estimate. He singled out Digital Media for its standout performance, generating new annual recurring revenue of $470 million.
According to the analyst, the beat in earnings per share compared to the firm's estimate was partly driven by the non-GAAP operating margin coming in at 45.3% compared to the estimated 44.4%.
Firefly Power: Bracelin highlighted the success of Firefly, Adobe's generative AI system, which has surpassed half a billion generations since its beta release in March. He expects a more formal monetization strategy for Firefly as a standalone SKU and embedded feature to be announced this fall.
Firefly integrates with Adobe's Creative Cloud applications and had over one million monthly users on average during the quarter ending in May, based on third-party data analysis.
Healthy Outlook: While Adobe reduced its full-year Experience Cloud guidance due to an elongating enterprise sale cycle, Bracelin expressed optimism about the healthy guidance across the Creative and Document Clouds.
The analyst stated, "After three years of moderating ARR growth rates across Creative Cloud (~60% of sales), 2023 could mark the beginning of a new era of growth for ADBE driven by new products, product-led growth initiatives, and gen AI tailwinds that combined could reaccelerate topline growth."
As a result, the analyst raised his estimates for the company and the valuation multiple, based on "increasing confidence in secular growth tailwinds and durability of double-digit EPS growth potential."
Price Action: Adobe stock closed Thursday's session up 2.37% at $490.91 and gained an additional 3.54% in after-hours trading, according to Benzinga Pro data.