Adobe: BMO cuts target price on underwhelming guidance

BMO cut its target price on Adobe (NASDAQ:ADBE ) after the software giant clocked a slew of disappointing quarterly metrics, and also presented a weaker-than-expected outlook for 2025. 

BMO cut Adobe’s TP to $570 from $600 while maintaining its Outperform rating on the stock. 

The brokerage noted that Adobe’s annual recurring revenue (ARR)- a key metric for software as a service firms- beat expectations by a smaller margin in the November quarter than seen earlier this year. 

BMO also said ARR growth for Adobe’s Creative Cloud- at 2%- was lackluster, and also missed estimates for 5% growth in the November quarter. 

Most egregious was Adobe’s revenue guidance for 2025, at $23.30 to $23.55 billion. The forecast missed street estimates of $23.78 billion, indicating that recent measures by Adobe to incorporate artificial intelligence into its offerings were taking longer than expected to generate returns. 

Still, the BMO noted resilience in Adobe’s Document Cloud business, with a bulk of its increase in ARR being driven by the unit. But the brokerage also said that the trend, while encouraging for Document Cloud, was disappointing for investors, given that they preferred a more balanced upside.

BMO said it was maintaining Adobe at Outperform based entirely on its valuation. The stock tumbled nearly 10% in aftermarket trade, and was down about 5% so far in 2024.

Adobe ramped up its investments in AI amid increased competition from smaller players such as Stability AI and Midjourney, whose image generating software is expected to eat into Adobe's market share.

But the company is still struggling to monetize its AI features, with revenue failing to pick up substantially despite the introduction of Adobe's own image and video generation features.

Source: Investing.com