Adobe Stock CRASHES After Earnings: Here's Everything You Should Know

Adobe reported their latest quarterly figures Thursday after the market closed and the shares are now down 9.25% despite a double beat for the quarter but guidance missed slight misses but still it missed so the stock is now down 9.25% has a market cap of $260 billion and a forward PE of this is the updated number here 26.8 times which is back under the fiveyear mean of 33.4 times ev2 Abid is at 20.2 times price to sale is 10.2 times which is very very close to the 5year mean price to free cash flow is a little bit more expensive at 36 times that's in the last 12 months I'll talk about the free cash flow problem in just a second and price earnings to growth sits at 1.56 now over the past 10 years Adobe has bought back around 11% of its shares outstanding and of course free cash flow per share has gone up throughout the years as well it's a solid compounder it's a solid company but of course there are still some questions on whether or not they could be monetizing the generative AI Solutions products offering is their lunch being eaten by all the other AI Solutions out there right all the free Solutions out image Generation video generation text to image text to video etc etc so let's talk about all of that in this video if you enjoy this type of videos leave it a thumbs up subscribe if you have not yes there is no camera in this video right now apologies will be fixed in the next one and if want support me even further do check out the link down in the description and in the pink comments with top 10 best stocks to buy now or go to f.com investor thank you very much so let's first start with the major overview of the quarter so Revenue came in at 5.41 billion that's 11% growth year-over-year Gap EPS came in at $376 that's growing 23% year-over-year and N Gap came in at $465 growing 14% year-over-year The company generated just over $2 billion of cash flow from operations they have a $2.5 billion share purchase agreement and RPO remaining performance obligations was $18.14 billion now moving to the different segments of adobi plus total revenue over the years have grown quite nicely I mean total subscription Revenue has grown at A Kar of 15.26% in the last 4 years if you look at the fastest growing segment that's the document cloud that has grown just over 20% over that same period now if we look at the last 10 years if we look at total revenue That Grew at a ker of 18.6% if you look at free cash flow That Grew at a ker of 25.10 per. but in the last couple of years you can see that Revenue no problem to grow Revenue year over year but over the last 2 three years or so free cash flow per quarter has not really grown much and and and that's something you want to look at because as the company become bigger and bigger essentially you would like to see free cash flow continue to grow right in line with Revenue growth so far that has not been the case now that doesn't mean that the company cannot do well or that it has not done well in the last couple of years has done quite okay bought back a lot of shares still continues to grow launches new products etc etc yes of course there were some controversies as well in the new terms and agreement etc etc but let's be honest they're offering their Solutions still Best in Class in my opinion moving on here document Cloud revenue for that was $87 million for the quarter that was up 18% year-over-year they saw continued strength of PDF based collaboration which shares link growing greater than 70% year over-ear they increased top of funnel through a Crobat web monthly active users growing over 35% year-over-year as a result of link sharing and their Microsoft Edge and Google Chrome extensions key Enterprise customer wins include Amazon Charles Schwab Disney Home Depot kpmj Red Bull and many many others as for Adobe Creative Cloud revenue for that came in at 3.19 billion that was up 10% year-over-year they saw a strong adoption of the latest version of Lightroom and Lightroom mobile which now includes the new generative remove feature they also saw strong demand for five life services and powering organizations to to automate content production while maintaining quality and control total API calls tripled quarter over quarter Adobe Pro single app continues to be a grow driver in Creative Cloud reflecting the increasing adoption of PDF as a preferred format and here as well some key Enterprise customer wins include EST louder Google mediam mons meta MLB new brands PepsiCo etc etc as for Adobe experience cloud and of course with the holiday season couple of months away expect this to be a huge success revenue for that segment came in at $1.35 billion that's up 10% year-over-year with subscription revenue of $1.23 billion up 12% year-over-year they saw continued momentum for Adobe experience platform and Native applications including real-time customer data platform customer Journey analytics and Adobe Journey Optimizer here some Enterprise customer wins include Home Depot haana ABM Johnson and Johnson Mayo Clinic and a couple of others now in terms of monetizing the generative AI hype Solutions product offering etc etc here is one answer and then we're going to have to read over a couple of comments from some analysts so in terms of monetization what we've said in the past is that the current model is around generative credits which is things where they're going with this and now they do see with every subsequent capability that integrate into the tool to total credits consumed is going up meaning every time you want to use a generative AI solution in the product Suite you have to use some credits of course the whole conversation about credits is about how Adobe is going to monetize that in the future now what we're trying to do is as we go forward we haven't started instituting the Caps yet and part of this as we've said all along we wanted to really focus our attention on proliferation and usage across the base we see a lot of users excited about it it's some of the most actively used feature that we've ever released and we want to avoid the generation anxiety that people feel but we're watching very closely as the economy of generative credits evolves and we're going to look at instituting those caps at some point when we feel the time is right and or we're also looking at other alternative models to which we go now into two analyst comments here one from Morgan Stanley who maintained overrate rating and a $660 price Target on the stock the results presented a tale of two quarters they said it was a strong fiscal quarter highlighted by 10% net new digital media airr beat and solid margin upside compared to a well below seasonal guide for fiscal four quarter net new digital media AR in addition the analyst and his team noted that the usage of generative credits ramped in the quarter with direct monetization avenues like Firefly services and acrobat AI assistant contributing well in the fiscal third quarter the they added that the Enterprise and federal contracts in the document Cloud pulling into the third quarter impacted the shape of the second half of fiscal year but a fiscal 2024 Target still moves about $23 million higher as for Jeff they kept a buy rating in a $700 price Target on the stock noting that there were no questions on the strong print but many on the guidance the analyst said the Fel third quarter net new annual recurring revenue or ARR beat guidance by $44 million but if fiscal fourth quarter Outlook was $21 million below consensus which disappointed investors expectations that were B by positive checks the and his team expect fiscal 2025 could be the year of AI monetization fiscal 2024 is already seeing some monetization though early as new users buy higher price plans existing users upgrade Enterprises buy Firefly services and new products such as acrobat AI assistant get adopted thenis added the generative AI usage limits have not been enforced so far but they believe this could change in early fiscal 2025 especially for higher value gen AI process for video audio 3D and animation their checks suggest fiscal fourth quarter Enterprise renewal will include a harder push to monetize AI usage and of course with Adobe Firefly video model coming soon I think people will get a little bit more excited but yet the question are still the same right monetization wise how are they going to monetize all of their tools are they just going to raise prices or are those things going to be add-ons meaning you have your based price you get let's say 20 50 credits or something like that once you're over that for every I don't know 10 20 credits that you want to use you'll have to pay extra yeah I know I can already see the negative headlines but I mean if you get something extra then you'll have to pay for it of course then of course there's going to be different tiers different pricing options for individuals for for businesses for Enterprises commercial use etc etc it's going to be interesting to see how things evolved I currently have no position in Adobe now looking at the chart right now we can see that the stock did rebound Friday just here at the 200 day moving average which sits at $529 RSI is neutral right now yes there was a little bit of negative momentum with the stock but if we can see solid rebound from that 200 day moving average I think we'll be fine there is that uptrend line that started all the way back here in September 2022 which was respected a couple of times right now if we continue that way would be around 475 if the stock were to drop all the way there but yeah as time goes by of course that uptrend line will go up and up and up but overall like I said at the start of this video I think Adobe is a very very strong Company still not not back to its alltime highs and maybe it shouldn't be I mean it was pretty overvalued here back in 2021 just like many other stocks out there but I think that adobe is still a very very good company and yes I do think that they will figure it out when it comes to generative AI the credits and the monetization of it so overall that's about it for me in this video I think it's a great great company to have in your portfolio if you already have it I don't think you should be selling and if you want to buy buy on red days of course that's about it for me in this video if you enjoy this type of videos leave it a thumbs up subscribe if you have not and I'll see you all in the next one bye-bye [Music] [Music]