Adobe (Nasdaq: ADBE) shares opened about 5% lower following the company's fiscal Q2 earnings which came in slightly below expectations and weaker than expected full-year guidance. The company attributed most of this due to some weakness in Eastern European sales due to Russia's invasion of Ukraine and foreign exchange effects.
Adobe shares continue to languish on a longer-term basis like many software stocks. Shares are down 49% from their peak in November 2021. There's increasing concern that a recession or slowdown in the tech sector could impact sales and retention of the companies' products especially as there are more open source software packages gaining traction, especially among younger users who are flocking to freemium products like Figma and Notion.
So far, the company has continued to maintain growth in this difficult operating environment. Thus, its valuation has improved as it now sports a forward P/E of 22. The company has also been increasing prices for some of its products which should be supportive of margins.
Inside the Numbers
In its fiscal Q2, Adobe reported $3.35 in earnings per share, slightly higher than analysts' expectations of $3.31 per share. This was a 6% improvement from last year. Revenue was $4.39 billion, beating estimates of $4.34 billion and 14% higher than last year.
For 2022, Adobe slightly reduced guidance to $13.50 in adjusted earnings per share and $17.65 billion in revenue. This is a decrease from its previous guidance of $13.70 in adjusted EPS and $17.9 billion in revenue.
Some reasons were the war in Ukraine, the stronger dollar leading to $175 million in forex losses, and economic uncertainty.
The biggest components of revenue growth were Adobe Creative Cloud, Document Cloud, and Experience Cloud, and an acceleration in subscription revenues. These segments saw growth between 15% and 17%, respectively, topping analysts' estimates. The company also implemented small price hikes, although its major focus remains user acquisition.
The company currently has about $5 billion in deferred revenue and $5 billion in cash. The company said that it was looking for acquisitions given that valuations have plummeted over the last 18 months for many public and private software companies.