Adobe Stock Plummets 10% Despite Record-Breaking Earnings!

Adobe stock is down big today the nasdaq's up but it's currently down 8.75% pre-market it was down over 10% now guys why is that now it's pretty interesting Adobe announced EPS in Revenue that both beat Market expectations both of them beat might wondering well then why the hell is the stock down well before we get into why the stock is down this is their actual quarterly results record Q3 net digital media ARR and I believe ARR is annual recurring revenue of 54 million with exiting RPO surpassing 18 billion which is a record exiting RPO is the revenue that they project out for the future so they have a record 18 billion anything bad there so far not yet Doby's Q3 performance is a testament to our Relentless Innovation blah blah blah blah blah Q3 Adobe delivered cash flows over $2 billion and exit quartered with the record RPO $2 billion in cash flow okay let's see what they did in the same quarter last year so we're going to go to our quarterly so the same quarter would have been August of last year it last year they had 1.87 minus 91 million so call 1.78 billion versus two billion so they increased their their revenue by their Cash Flow by 11% anything you want to cry about so far neither do I okay achieved revenue of 5.41 in third quarter of 2024 represented 11% year-over-year growth EPS per share 376 on Gap and 465 on N non- Gap cash flows were 2.02 billion Adobe repurchased approximately 5.2 million shares during the quarter now granted this is their earnings result but why are they down well guys this is why they're down yes they beat analyst revenue and EPS expectations its gross margin also improved so every extra unit they're selling they're making more money on it however the market was likely expecting more the stock market overreacts to news I love they said that and here's what it was after the company reported these its Revenue guidance for next quarter missed wal Street's estimates in addition remaining performance obligations RPO came in slightly below consensus suggesting that adobe May face increased pressure to meet its near-term growth free Cash Flow came in below expectations so 11% increase in free cash flow but below expectations guys if you're new to what we're doing here this is our 247 Channel and I love talking about the news and earnings releases and the main reason is though I want to use it to teach this record C all these records they're having they beat on earnings they beat on revenue and people are punishing them by 10% of the market cap of the company because they guided less did they guide Less in the sense of astronomically less 10% less no that's what's interesting this is what I say when I say news follows a stock price and the emotions of the market are just a voting machine there's no way that 10% drop is rational if they were worth what they were worth they worth 10% more yesterday but to have a 10% drop because they guided poorly guided less than expected for the next quarter guys the next quarter you can't call yourself a long-term investor if you're worried about next quarter question is Adobe a good company answer yes question does Adobe have a good balance sheet answer let's go check it out so let's go look at Adobe from a 500 foot view guys $241 billion market cap $248 billion Enterprise Value that difference is essentially their net debt of seven billion they generated 6.37 billion in free cash from the last 12 months they generated two billion last quarter they could pay off all of their free all their net debt with three quarters in less than one year with three quarters of cash flow as if didn't get better high and increasing roic so it means they're becoming a better and bigger remote and they get a really good return on the money that's invested in the business 88% gross margin these are these are freaking train Manu these are train locomotive kind of margins with the bottom line of 25 to 30% and their free cash flow last year and the last five years is significantly higher than last year's net income and their last year's um last five years net income oh boy this is what I want you to do I want you to remember this next time a stock You Love is falling but yet the numbers still look good but it's based on guidance think that's an opportunity potentially now the guidance could be the start of something major that's bad I get that but if the stock went up 10% because guidance was better I mean do you want to overpay because of one quarter with a good guidance give me a break so this makes sense to you guys and if you want to hear more about you know with four or five videos a week about the markets about economy about these individual companies subscribe to the channel this what I love talking about I I came into the office today I I came in the office today our studio wasn't open I had Nick come down I said Nick I want to do a video on Adobe because I think it's a great learning experience a freaking top quality business one of the 33 companies I want to own in my portfolio that I would like to own someday at the right price but yet it's being beaten up why because they guided poorly guys would I be shocked if Adobe wasn't around in 10 years absolutely they make a top quality product high margin increasing Returns on invested capital and then has a company balance sheet but remember there's a difference between the company and the stock we got to differentiate those and when you're able to differentiate those you're able to make a decision based on investing I've talked about this countless times for example I have a cyber truck I like that car a lot and guess what I'm not touching Tesla stock price because liking the car and the company versus liking the stock totally different totally different things I want you to understand that nonstop this is such an important aspect to investing we have a company all-time high of $700 back in 20121 got as low as 275 or so back in September of 2022 after that bare Market in tech stocks went back up came back down was going back up I mean this volatility is insane had a low price of 433 just on May 31st the volatility on this company is insane but that can be your friend when you understand that when you buy a stock you're buying a piece of abysus now let's go see what analysts are saying about this company first off let's go to the eight pillars very quickly everything the check except for the 5year PE 5-year price to free cap flow 38 times free cash flow in The Last 5 Years seems a little pricey I don't care I mean unless you're going to grow a ton that seems tough so what do analysts expect for their growth EPS growth 14% 133% 15% 12% 12% 1850 to 30 bucks in the next five years and they're going to generate more cash FL than that Revenue growth double digits I'm actually surprised that the profit growth isn't 20 or 30% with these kind of Revenue growth numbers because of how high their gross margin is when you have a company with a really high gross margin every extra unit they sell big chunk of that goes to the bottom line right before taxes because you've already covered your overhead costs that's huge so if you're seeing 10% growth I would expect at six or seven per of the earnings per share that's incredible easily but it's not doing that maybe they have to put more money back in the business I have no idea I look at this is a top quality company and on our main Channel I've EV valued the company more deeply so if you loved Adobe at $700 per share one question for you why would you not love it today why would you not love it at 400 why would you not love it at 300 because eventually when there is a bare market and that bare Market occurs the the high-flying NASDAQ stocks with the high valuations will probably be hurt the hardest Mark that right here make sure you write that down Paul said it on this date at this time because you'll see that it's happened in 2022 and it's happened out throughout history the most overhyped companies fall the hardest and Adobe is a company that you're going to want to pay attention to because as it falls hard and harder and harder you're going to want to pick up more shares if you think the company's financials are getting better thank you for your time